If the bank interest rate cap is withdrawn and left to be decided by the open market, inflow of investment will be affected, said Md Jashim Uddin, president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) yesterday.
However, a large number of economists have been suggesting over many months to withdraw the interest rate cap for lowering the high inflation in the domestic markets.
Previously, bank interest rates were increased to reduce inflation but the result was the opposite, as inflation could not be contained while investment was affected, said Jashim.
The government should increase the allocation for improving energy supplies as the industries have been suffering from low gas pressure in the supply lines and frequent power cuts, he added.
If the government wants to maintain macroeconomic stability, investment in energy is very important, he told a roundtable on the proposed budget for fiscal 2023-24.
Production in industrial units has been affected for the ongoing low gas pressure and frequent power cuts although gas prices were doubled to Tk 30 per unit from Tk 16 per unit, said Jashim.
Expressing resentment, he said the government has been amending the banking companies act but the FBCCI does not know anything about it as this important stakeholder was not consulted.
Moreover, although a taskforce exists comprising representatives of the National Board of Revenue (NBR) and the FBCCI, meetings are not taking place for consultations on different disputes related to tax issues, he said.
Jashim demanded that the government withdraw a 15 per cent VAT on the sale of recycled fabrics and yarn and suggested on not imposing advanced income tax as surplus amounts are not returned to businesspeople as per the rules.
The proposed budget is not ambitious but it will be difficult to implement, he said.
He also suggested automating services of the NBR and for expanding the tax net up to rural areas for generation of more revenue.
The discussion was organised by Economic Reporters’ Forum (ERF) in collaboration with the Research and Policy Integration for Development (RAPID) and The Asia Foundation at the ERF office in Dhaka.
Abdur Razzaque, chairman of the RAPID, suggested increasing direct tax, mainly to reduce income inequality.
Currently, direct tax accounts for 35 per cent of the total revenue generated by the government and the government plans to take it up to 42 per cent in a few years. If it can reach 50 per cent by 2030, it will be laudable, he said.
He also suggested increasing the allocation in three important sectors, even if it means reducing that for others, to benefit the low-income segment of the population.
The proposed budget reduced allocations to some extent in these three sectors from that last year, said Razzaque.
Of them, the allocation for open market sales of commodities by state agencies was reduced by some 10 per cent, vulnerable group feeding by 30 per cent and job creation for financially insolvent people 15 per cent, he said.
Highlighting that macroeconomic stability is very important, Razzaque suggested withdrawing the interest rate cap and letting it be decided by the open market to curb inflation in the markets.
If social spending is increased, inflation will cool down a bit, he also said.
Achieving a 7.5 per cent GDP growth should not be a priority, rather it now should be on maintaining macroeconomic stability, said Shawkat Hossain Masum, head of online on Bangla daily Prothom Alo.
The government’s strategies for maintaining macroeconomic stability is not clear in the proposed budget, he said.
Excessive borrowing by the government from the banking system is a major concern for the economy, said Ferdous Ara Begum, chief executive officer of Business Initiative Leading Development (BUILD).
Some Tk 16 trillion is needed to reach the targeted investment-GDP ratio of 33 per cent, she added.
M Abu Eusuf, executive director of the RAPID, suggested introducing a “remittance card” to encourage remitters to send money through formal channels.
The school feeding programme for children in the budget is laudable, he said.
The proposal for individuals, who are required to submit income tax returns to avail of various government services, to pay a minimum tax of Tk 2,000 even if they do not have taxable incomes may be considered for withdrawal, said Planning Minister MA Mannan.
Prices of some commodities has increased and lowering inflation to 6 per cent is next to impossible, he said, suggesting state-owned Trading Corporation of Bangladesh to have large stocks of goods to intervene in the market.
ERF President Mohammad Refayet Ullah Mirdha chaired the discussion while General Secretary Abul Kashem moderated the session.