New budget to squeeze middle class further

Jahangir Shah . Dhaka | Update:

Abul Maal Abdul Muhith. File PhotoFinance minister Abul Maal Abdul Muhith has targeted the middle class to realise taxes in the coming 2018-19 fiscal, say experts.

House rent, local apparel brands and commute are said to be costlier due to imposition of higher tax on related products and services in the budget he proposed on Thursday.

The finance minister has proposed five per cent value added tax (VAT) on using Uber, Pathao and other ride sharing services and 3-4 per cent tax at source on those providing the services.

He has raised rate of VAT on local brands of shirts, pants and shalwar-kameezes from four per cent to five per cent and introduced five per cent VAT on clothing bought from large stores.

Changes brought about by the budget in the tax system will keep the middle classes under immense pressure, chief economist of the World Bank's Dhaka office Zahid Hussain told Prothom Alo on Friday.

Commute has been made costlier for the middle class by imposing taxes on ride sharing services like Uber and Pathao, he said.

And, he added, benefits have been given to the wealthy through decreasing taxes of banks and financial institutions.

The imposition of surcharge on the owners of houses of over 8000 square feet within the city corporation areas will increase house rent as this charge will cost the owners at least Tk 3,000-5,000.

Flats of less than 1100 square feet area will be costlier as the minister proposed to increase VAT to two per cent from the existing 1.5 per cent in his budgetary speech in parliament on 7 June. A customer will have to pay Tk 25,000 more for a flat of Tk five million.

Zahid Hussain said imposing VAT on the prices of smaller flats is not consistent with the government’s principle of decreasing the rising income gap.

The price of reconditioned cars will also soar as the finance minister proposed to decrease the depreciation.

He has not either raised the ceiling of individual tax-free income. The current threshold is Tk 250,000.

Those who were benefitted by the ceiling of tax-free income last year will come under the net this year should their salary increase.

The finance minister has said he would slash the rate of interest of savings instruments [Sanchayapatra], one of the cushions of the middle class, especially the old-age people and women, during recessions.

He has announced the target of selling Tk 261.96 billion Sanchayapatra (saving certificate), which is 40 per cent lower than the previous fiscal. The target was Tk 440 billion in the outgoing fiscal.

More bad news for jobholders is that they must submit their income tax returns by April every year and the respective employing company has to ensure this. If not, the income and expenditure of that company will come under scrutiny.

Overall, instead of releasing pressure on the middle class, the government has squeezed them more, thinks the World Bank economist.

*This piece, originally published in Prothom Alo print edition, has been rewritten in English by Shameem Reza

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