Tax support needed for job recovery

Restructure of corporate tax, improvement in the ranking of the Ease of Doing Business Index, and special allocation for SMEs should get priority in the upcoming budget to draw investment and revive the job market, employers and economists say.   

The economy is definitely recovering towards the pre-pandemic levels, but it is still not quite there particularly in terms of returns to employment. This was one key finding from the latest employment survey of the South Asian Network on Economic Modeling (Sanem).

The other key finding is the uneven distribution of recovery across sectors and types of employment. 

The self-employed in transport, hotels and restaurants, and manufacturing have recovered the least, while the wage employed have recovered relatively better.

Around 7.8 per cent of wage employees in different sectors who lost their job are still unemployed, the Sanem said.   

"Employment generation must ascend in the priority list of the budget for the fiscal year of 2021-22," said Zahid Hussain, a former lead economist of the World Bank's Dhaka office.

"Both expenditure and tax policies will have to be reoriented to focus more on augmenting opportunities for the unemployed and the underpaid self-employment."

Abul Kasem Khan, chairperson of the Business Initiative Leading Development, said the government should emphasise improving the country's ranking in the Ease of Doing Business Index to draw investment that will go to job creation.

"The world has not faced this type of economic struggle during the last one hundred years. So, the government should adopt extraordinary policies for the next three years that would benefit the economy."

The former president of the Dhaka Chamber of Commerce and Industry said businesses did not expand as the people and businesspeople concentrated more on savings because of the uncertainty.

"Consumers don't spend money when they are in a saving mode, and businesses don't expand. For this reason, the government should introduce incentives for consumption and improve the ranking in the Ease of Doing Business Index to bring back vibrancy to the economy," Khan said.

He called for reducing corporate tax and emphasising job creation by giving tax incentives to the investors who will create employment opportunities.

Small and medium enterprises (SMEs) were affected severely during the pandemic, as sales dropped sharply. The sector has had no access to finance.

Khan suggested the government make a special allocation for the sector to ensure their access to finance to make a comeback.

In Bangladesh, there are nearly 7.9 million SMEs, including micro-enterprises contributing 25 per cent to gross domestic product (GDP), according to the Asian Development Bank.

SMEs account for 11 per cent of the country's industrial establishments, 30 per cent of industrial employment, and 40 per cent of the manufacturing output, showed the Economic Census 2013.

Rizwanul Islam, a former special adviser for the employment sector at the International Labour Office in Geneva, said various surveys show that incomes of vast numbers of people, especially in the low-income category, were still well below their pre-pandemic levels.

"This indicates that the employment situation has also not recovered fully."

He said the economy was faced with the dual challenge of returning to the pre-crisis growth path as well as that of getting on track for meeting the Sustainable Development Goal targets of full and productive employment and decent work for all, and reducing inequality.

"Given the urgency of the situation, some ad hoc measures of income support for the poor, such as direct cash transfer that was attempted last year, should be continued – of course with necessary improvements."

Islam called for expanding direct employment generation programmes.

He also suggested allocations for economic support programmes for small and micro enterprises and finding non-bank alternatives for reaching target beneficiaries in this category in the next budget.

Kamran T Rahman, president of the Bangladesh Employers' Federation, suggested the government provide stimulus packages to all entrepreneurs in the next budget so that they could create jobs.

The rules on the disbursement of the stimulus packages should be made easier so that all entrepreneurs can access the funds. And the repayment period should be extended, he said.

Sayema Haque Bidisha, research director of the Sanem, recommended job creation in urban areas.

Razequzzaman Ratan, president of the Socialist Labour Front, said the pandemic affected informal sector workers. And those who work in the informal sector would face food shortage and malnutrition.

So, the government should allocate Tk 5,000 crore to introduce a rationing system in the budget to provide food assistance to the new poor.

Zahid Hussain said many micro, cottage and small industries had remained excluded from the subsidised credit packages because of their inability to access the banking system. 

The government has made some mid-course corrections that rely on alternative institutional mechanisms. 

"We don't have much information on how these have fared. If they have met expectations, then the programmes being implemented need to be strengthened," Hussain said.

Taxation policies need to eliminate provisions that discriminate against the smaller players, he said.

"Reforms in VAT are needed so that the cottage, micro and small enterprises are reintegrated in the supply chain feeding the medium and large enterprises."

According to the economist, corporate tax structures need simplification in ways that will encourage productive investments. 

"The government must move away from ad hoc tax policy changes towards a predictable taxation regime to make taxation trade- and investment-friendly."