Dhaka,  Thursday
25 July 2024

Inflation control measures missing in action

Editor, The Daily Messenger

Published: 08:39, 9 June 2024

Inflation control measures missing in action

Photo: Collected

Finance Minister Abul Hassan Mahmood Ali's budget proposal for the financial year 2024–25, presented in the National Parliament on Thursday, was expected to focus on tackling persistent inflation. Unfortunately, despite being prioritised on paper, the budget lacks clear direction on reducing inflation. Instead, the finance minister emphasised revenue collection to meet IMF conditions. Consequently, the budget proposes increased taxes on many daily commodities and services, which, if implemented, will raise the cost of living for the middle class.

Allocations to the social security sector and the number of beneficiaries has been increased nominally, with a projected drop in inflation to 6.5 percent in the next fiscal year. However, with inflation hovering around 10 percent in recent years and food inflation being even higher, there is skepticism about achieving the inflation reduction target through the proposed budget. Rather, the expansion of the tax base is likely to exacerbate the suffering of the middle class.

In fact, there is no good news for the middle class in the proposed budget. The demand to increase the tax-free income limit for individuals was not accepted. Furthermore, the imposition of a 15 percent VAT on metro rail ticket prices has raised concerns. The decision to increase the supplementary duty on internet service and mobile phone call rates is also not middle-class-friendly.

The budget introduces numerous changes in the VAT and customs sectors, which will further increase the daily expenditures of the middle class. One of the most talked-about aspects of the proposed budget is the opportunity to turn black money into white with a 15 percent tax. Many people believe that this measure will encourage corruption, as it allows a lower tax rate on illegal income compared to the maximum tax rate of 30 percent on legal income.

The export sector has been neglected in the budget. The demands for a reduction of the tax at source on exports from 1 percent to 0.5 percent and for a reduction of the tax at source on cash incentives were not considered. Additionally, the proposal to impose a 1 percent duty on the import of raw materials may put further pressure on this sector. However, the decision to cancel the long-standing duty-free facility for importing cars for parliamentarians is seen as a positive step.

In the budget proposal of Tk 7 lakh 97 thousand crore, with an income estimate of Tk 5 lakh 45 thousand 400 crore, the deficit stands at Tk 2 lakh 51 thousand 600 crore. There is concern about how this large deficit will be addressed, highlighting the need for the relevant authorities to develop the necessary capacity to manage it. Budget management in the country is currently very weak, and it is crucial to address this issue.

For the proper implementation of the budget, allocated funds must reach the intended sectors at the right time. Efficiency and administrative capacity should be increased in each sector to ensure the effective use of allocated funds and to avoid wastage. There needs to be a meaningful discussion on the budget in Parliament, and experts outside Parliament should also provide their views for a comprehensive debate.
We hope that the government will consider making amendments to the budget based on recommendations from both inside and outside Parliament, particularly in areas such as tax proposals.