Editorials on the media briefing on Recommendations for the National Budget FY2014-15, held at the Brac Centre Inn on Sunday, 4 May 2014.
Published in News Today
Political stability brooks no delay
The CPD has come out with a very pertinent proposition for the coming 2014-15 national budget. The leading think-tank in a press conference said on Sunday, to improve the investment situation, the government may consider a number of fiscal measures such as expansion of subsidised credit facility for domestic market-oriented SMEs to help them recover their losses due to political turmoil.
It called for special incentives for export-oriented industries other than garments to improve their competitiveness and so on. CPD said the government may also consider a number of fiscal measures for a set of targeted industries.
Main thrust is for restoring political stability in the country as present calm on the political front appears to be a temporary ceasefire. We have seen that a consequence of depressed business is unemployment. Many employees who lost their jobs have returned to their villages in search of work while others are haunted by the fear of uncertain future in cities.
A large section of the low income group, such as workers in hotels, restaurants, shops, transport sector and the like, rickshaw pullers and day labourers have suffered huge loss of income. The industrial sector has been affected as the products could not be distributed across the country. The exporters could transport their products with much difficulty, not only at higher transport costs but also at high risk of getting them burnt during political violence.
Though exports are still showing high performance, buyers of readymade garments (RMG) have alerted Bangladeshi manufacturers about shifting their orders from Bangladesh to other sources such as Cambodia, Vietnam and even India if political violence continues. Any such move will mean unemployment of a large number of workers, who will create pressure on the already pressured economy in terms of employment generation capacity. This will also create social problems as a majority of RMG workers are women who have been empowered through economic independence by way of working in the RMG sector.
The agriculture sector is vulnerable during times of political turmoil as the whole supply chain is disrupted. The media reported that producers of agricultural commodities had to give away their commodities at a minimal price as those were perishable and could not be transported to cities regularly. Milk producers literally threw milk on the streets out of frustration as they could not fetch the right price. Disruption of the supply chain pushed prices up in cities.
Food inflation went up to 9% in December 2013 as opposed to 5.28% in December 2012. Notably, the target for inflation during FY2014 has been set at between 6% and 6.5% by BB, which seems to be difficult to achieve in view of the emerging situation.
On the whole, political unrest has affected the production process both directly and indirectly. The direct impact is through lower economic activity and indirect effect is through disruption of various channels and means of production.
With the political unrest cooling down gradually, many economic activities have started to get back on track. However, it will take some time and require high expenditures to get some of the damaged establishments functioning. But is it really to last long? Ensure medicare for poor
Published in The New Nation
Corporate tax cut not enough to gain investor’s confidence
AMID the government’s plan to lower corporate tax to boost private investment the Centre for Policy Dialogue – an economic research think-tank – has opined that the move would not necessarily trigger a positive impact.The corporate tax rate in Bangladesh now ranges from 27.5 percent to 45 percent, and the Finance Minister and the Chairman of the National Board of Revenue have already indicated that it would be lowered in the budget for fiscal 2014-15.
The rationale behind the plan to lower corporate tax is that it is very high in comparison to other Asian countries. However, CPD has debunked this claim. The average corporate tax rate in Bangladesh is one of the lowest in South Asia, which is close to the average corporate tax of Southeast Asian countries, according to the think-tank.
Moreover, we cannot understand why this comparative analysis comes into play while a positive increase in investment is expected. CPD’s research shows that the argument that a lowering of the corporate tax will have a positive impact on private investment is not robust. This is because the corporate sector is overtly dependent on debt-based financing for investment to which a tax cut would have little effect, if any.
Furthermore, when political uncertainty is at a peak and the economy is stumbling because of a feeble infrastructure what miracle a corporate tax cut could do is not quite understandable from an economist’s point of view. And hence, if supportive measures such as a business-friendly environment and supportive infrastructure are not ensured, then lowering of corporate tax rate will likely have only a limited impact on investment.
On top of all, the country is in the grip of prolonged political impasse and instability with a government that suffers from the question of legitimacy following the January 05 voter less election. As such, there is a serious confidence gap in the investor’s circle. We hold the view that without ensuring stability which is again dependent on a peaceful political environment, without putting the necessary infrastructure in place, without ensuring adequate energy, without ensuring safe working conditions, there cannot be and there will not be a sustained increase in the flow of investment. Under the circumstances lowering corporate tax alone can gratify big corporate bosses only.
Without the required rate of investment GDP cannot rise up to the level necessary if Bangladesh wants to be a middle income nation. CPD has rightly pointed out that the demand of the business leaders for lowering the corporate tax rates calls for close examination and a detailed analysis. If corporates are given a blank cheque the only beneficiaries would be corporate bosses.