The national budget for fiscal 2022-23 has been placed in parliament with a proposal for increasing the source tax from present 0.5 per cent to 1 per cent. This surely will not be good for Bangladesh’s businesses when its economy is already grappling to tackle a severe crisis created by the Covid-19 pandemic and Russia-Ukraine war. This increase in the source tax has been slapped at a time when the export-import expenditure has already shot up by nearly 40 per cent as taka has depreciated against the US dollar.
Naturally, as the country’s businesses will come under additional pressure for enhancing the source tax, entrepreneurs have already decried the decision. Even pro-Awami League economists, including Dr Atiur Rahman, who have otherwise praised the finance minister’s budget, have expressed their reservations on this point.
However, the danger of increasing the source tax can be real. The export-oriented sectors, including the readymade garments (RMG), may lose competitiveness in the global market for doubling source tax. A top BKMEA official pointed out that buyers do not increase clothes prices in line with the rise in manufacturing costs. But due to around $50 billion in export earnings in the current fiscal year, the government collected more revenue as source tax than the target.
Hence, for keeping the businesses more competitive, it sounds right to keep the source tax at its previous rate at 0.5 per cent. If it is not done so, depositors, both individuals and businesses, will not keep money in banks that can also jeopardise banking business hugely.
Now if the source tax increases, not only the business will come under pressure, people’s buying capacity will shrink even more. That is why we cannot support more source tax when curbing corruption, stopping money laundering and checking government expenditure can give Bangladesh’s ever growing economy a boost.
In the budget speech in Parliament on Thursday, the finance minister called raising the source tax on export proceeds to 1 percent from that of 0.5 percent a “rationalising” attempt and expressed that this “carries immense importance in formulating revenue policy.” It is difficult to understand, in the current economic scenario, how increasing source tax can be called a rational decision. It is quite the opposite.
