Budget, banks and the govt’s one-sided policy

Update:

At a juncture when the public is concerned at the mismanagement and corruption in the banking sector, finance minister Abul Maal Abdul Muhith cut corporate taxes by 2.5 per cent to 37.5 per cent to facilitate the owners of private banks in the proposed budget for the 2018-19 fiscal. He has, however, kept corporate tax at 40 per cent for other businesses. Certain economists have said this decision is a reward for the anarchy in the banking sector.

This one-sided policy of the government is being criticised. The apex body of businesspersons, FBCCI, has criticised this decision, saying that corporate tax should be decreased in all sectors, not just for the banks, if investment is to be increased. Normally corporate tax is reduced in sectors where there is potential of foreign investment.

The finance minister himself has admitted there are more private banks in Bangladesh than required. He had earlier spoken of merging some banks. He had even proposed a bank commission to restore discipline to the sector. None of this, though, has been reflected in the proposed budget.

FBBCI’s demand to punish the ‘bank looters’ is justified. Unless these looters are sternly brought to book for their irregularities and corruption, the banking sector’s discipline and good governance cannot be restored. While we do not differ with FBCCI’s appeal to offer concessions for businesspersons who have faltered, there is always the fear that such facilities will be intentionally misused loan defaulters.

Businesspersons and industrialists have long been demanding that bank interest be lowered. The government too has agreed to this, on principle. But they could not manage to make the government lower the interest rates of the bank owners. Yet the owners of the private banks are continuously extracting favours from the government.  In response to demands from the bank owners, the bank company act was amended, allowing for four members of one family to be the directors of the same bank and for nine years at a stretch. The budget has cut corporate taxes by 2.5 per cent for them. There can be no justification for this. There is a general perception that the government is appeasing the bankers prior to the parliamentary polls. Experts feel that borrowers and depositors will not benefit as the banks take much more interest from the borrowers than they give the depositors.

Providing the bank owners with such benefits will be suicidal. The powerful banks will pay no heed to the central banks mild warning that they will abolish tax facilities if they do not decrease interest rates.  They will remain steadfast in their original stance. They will take deposits from the depositors with low interest rates and and provide loans at high interest rates.

As it is, the banking sector is beset with all sorts of irregularities and corruption. Year after year, the government is pouring in public taxes to rescue state-owned banks and providing all sorts of facilities to the private banks. And yet the government pays little attention to the investment upon which the banks are run. So though the private bank owners are benefitting, this has no positive impact at all on the country’s economy.

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