CPD prescribes 3-point recipe to fix economy

The Centre for Policy Dialogue (CPD) has recommended the government restore macroeconomic stability, widen its fiscal space and ensure the best use of taxpayers' money through appropriate prioritisation in the budget for the upcoming fiscal year.

"The macro-budgetary framework for 2024-25 must focus on reducing inflation and stabilising the exchange rate," the think-tank said, citing how inflationary pressure has eroded people's purchasing power over the years.

As such, the Minimum Wage Board should consider increasing the minimum wages across all industries so that workers in the wage bracket can at least afford basic food items, it said.

"Along with that, the volume of essential commodities sold through the open market system should be increased."

The think-tank made these suggestions during a media briefing at its office in the capital's Dhanmondi yesterday.

Fahmida Khatun, executive director of the CPD, said fiscal targets for the upcoming budget should be set in a realistic manner considering the emergent macroeconomic scenario at home and abroad.

"Therefore, instead of GDP growth, protecting the interests of vulnerable and disadvantaged groups should take centre stage."

She also said complementarity between the fiscal and monetary policies must be ensured by the finance ministry and Bangladesh Bank.

"Besides, the government will need to focus on deep-rooted structural issues since the improvement in macroeconomic performance is contingent upon the solution of these issues. Thus, some hard choices will have to be made regarding reforms on the part of the policymakers."

Fahmida thinks for a political government, the first year of the five-year tenure can be the best time to make some unpopular but necessary decisions.

The CPD said budgetary allocation for the health sector has been less than 1 percent of the GDP for the past 20 years, indicating that healthcare has never been a priority for the government.

In Bangladesh, out-of-pocket expenditure as a percentage of current health expenditure was 74 percent in 2020, showing an increasing trend for the past two decades.

"It is necessary to increase the budget allocation for the sector and use it."

Also, the implementation of fiscal measures is crucial for improving public health, which, in turn, can maximise social welfare, it added.

Bangladesh's education budget was 1.76 percent of the GDP in FY24, the fifth-lowest among the 41 least-developed countries.

Against the backdrop, the CPD recommended raising the allocation and utilisation.

The think-tank said the 5 percent value-added tax on English medium schools should be cut as it puts an additional burden on the parents of middle-income households.

English medium schools follow the international curriculum and their students are assigned to study imported books, which face a tax incidence of 73.96 percent.

Considering how this inflates education expenses, the CPD said this tax should be slashed as well.

In view of the persisting high inflation, the second slab for personal income tax, which is 5 percent for every additional Tk 1 lakh, should be increased to Tk 2 lakh to provide a cushion to limited income earners, the CPD said.

The first slab of the tax-free income level was raised to Tk 350,000 from Tk 300,000 in the current fiscal year.

In the FY21 budget, the highest rate for personal income tax was reduced to 25 percent from 30 percent. The CPD argued that reducing the highest tax rate went against the cause of promoting tax justice.

"So, the highest tax rate should be reinstated at 30 percent for top earners in the FY25 budget."

In the FY23 budget, the gap in corporate income tax rate for listed and non-listed companies was reduced to 5 percent, which is discouraging companies from entering the capital market. The think-tank proposed restoring the gap to 7.5 percent.

Regarding the issue of undisclosed income, the CPD said rather than continuing such measures year after year, more proactive actions should be taken against tax dodgers by enforcing appropriate laws.

Historically, governments gave opportunities to taxpayers to legalise their undisclosed income or wealth by paying a nominal tax rate.

At present, taxpayers can legalise their undeclared income by paying tax at regular rates on their total income, including undisclosed amounts. On top of that, they have to pay a fine of 10 percent equal to the tax on the undisclosed income.

Prof Mustafizur Rahman, a distinguished fellow of the CPD, Khondaker Golam Moazzem, research director, and Muntaseer Kamal and Syed Yusuf Saadat, both research fellows, also spoke at the event.