Overall reforms are required in the economy. Firstly reforms are needed in the banking sector. There is a serious lack of good governance in the sector.
The steps which have been taken in the banking sector recently have been regressive. For example, instead of two members of the same family, now four members of the same family can remain on the board of directors of a bank. And these members can remain on the board not just for six years, but now for nine years. This does not bode well for good governance in the sector.
Providing bank loans on the basis of political identity or connections, and also relaxed loan recovery, must come to a halt. Trial of the loan defaulters must be accelerated. The finance ministry, Bangladesh Bank and the law ministry must take a decision jointly in this regard. And the budget must have specific directives concerning banking sector reforms.
The economy must be stimulated through private sector investment which remains slow at the moment. However, attracting private sector investment is presently an uphill task. There are problems in land acquisition, energy crisis and various infrastructural difficulties including road and railway communication. Fast track projects must be completed speedily and efficiently to address these infrastructural problems. LNG is being imported to address the energy crisis, but its availability must be ensured. The economic zones must be hurriedly set up to resolve the land crisis faced by the investors.
Mid-term and long-term businesses must be facilitated to stimulate the economy. We rank as low as 176 on the World Bank’s ease of doing business report, meaning there are 175 competitors above us. Good governance must be ensured in the process of starting and running businesses.
A new VAT law is being introduced in the new financial year. The biggest challenge of the law lies in its implementation. In the Bangladesh context, the flat 15 per cent VAT rate is rather high and so it is good that a varied rate is being introduced. The turnover tax ceiling has also been raised, another good step. Small and medium businessmen will get some relief.
The main problem in implementing the VAT law is that many business establishments do not have VAT registration though they are liable to pay VAT. The challenge is how to extract VAT from them. Then again, many businesses with VAT registration maintain two books. Many do not give their customers any receipts. Huge VAT evasion takes place this way.
The minimum income ceiling for individual tax payers should be increased as it has not been increased for a few years. Taking inflation into consideration, the minimum income ceiling should be increased to Tk 250,000 or Tk 300,000. This will provide some relief to the fixed income middle class.
Even though the budget can actually do nothing about the share market, the ceiling of tax-free profits in the share market can be raised from Tk 25,000 to Tk 50,000 thousand. The finance minister should provide certain guidelines in his budget speech regarding future plans to enlist local and foreign companies in the share market.
* ABM Mirza Azizul Islam is a former finance advisor of the caretaker government. This piece appeared in the print edition of Prothom Alo and has been rewritten in English by Ayesha Kabir