Finance Minister AMA Muhith sounded quite sympathetic towards the cause of the private sector employees and self-employed persons when he, in his June 02 budget speech, spelt out a plan to introduce a 'comprehensive pension scheme' for all.
But his budgetary proposal to levy 5.0 per cent tax on the profit/interest earned from investments of resources belonging to provident funds and pension or gratuity funds in banks' deposits and savings tools, does prompt one to raise questions about his sympathy. The two approaches appear to be contradictory in nature.
The pension plan, no doubt, is well-intended one. But the government wants to reap benefit out of it while trying to provide benefits to the private sector employees.
The so-called 'universal' pension scheme aims at reducing the government's burden on account of pension payments to the public servants on their retirement. At the same time, the government would utilise a part of the future pension funds of the private sector employees for meeting the long-term investment demand in the public sector.
The government intends to reduce its own pension payment, which is still unfunded, by making the pension system for the government servants contributory, meaning both the government and the employees will have to make their own contributions at certain rates.
It is unlikely that the government would have any financial involvement in the future pension scheme for the private sector employees. Whether the private sector employers will have any financial involvement in the planned scheme is also not known since nothing has been said about it. The proposed pension scheme for the private sector, according to the Finance Minister, would revolve round the concept of deposit pension scheme (DPS), which has been very popular with the middleclass people for long. However, lately, the DPS scheme has lost much of its shine because of a substantial cut in rates of return on deposits.
However, how the concept of DPS will be integrated into the proposed pension plan for the private sector people and self-employed persons is not clear. One, it seems, will have to wait for some more time to see what is up the Finance Minister's sleeve.
There is no denying that despite being ambiguous in content, the Finance Minister's announcement has stirred up expectations among the private sector employees most of whom get either nothing or meagre financial benefits at the end of their service life. A small number of domestic companies pay retirement benefits in accordance with the law. In a sellers' market, the employers tend to exploit their employees in all possible ways.
Everybody expects that the government would always protect the interest of its own as well as private sector employees. At the end of service life, the public servants, according to the new pay scale, will be getting a handsome amount of money. Compared to that, the retirement benefits given to most private sector employees is very meagre.
Under such circumstances, the proposal to impose tax on profit earned from fixed deposits with banks and savings tools, belonging to provident, pension and gratuity funds, by any measure, goes against the interest of the employees. The profit or interest earned through investment in savings tools or fixed deposit receipts (FDR) with banks does help increase the future financial benefits of employees, particularly those employed in the private sector.
Presently, interest/profit earnings from investments made in FDR or savings tools in the name of government-approved superannuation funds, pension and gratuity funds, recognised provident funds or workers' profit participation funds are exempted from tax. Employers and employees get tax rebate for their contributions made to gratuity and provident funds.
It is no denying that a section of officials and employees, working in private banks, multinational and large domestic companies and firms, does enjoy attractive perks and privileges. But that should not be the yardstick for assessing the conditions of most other officials and employees working in the private sector.
Mr. Muhith himself described the pitiable state of the people employed in the private sector in his budget speech. He said only 8.0 per cent of private sector employees get gratuity benefits and there exist no pension and gratuity benefits for the rest.
For many private sector officials and employees barring a few industries, there does not even exist any salary structure. The owners do dictate terms of services in a job market where every third person is either unemployed or underemployed.
Had the government been truly sympathetic, it would not have proposed levying of tax on income of provident or gratuity funds or the like.
It is, however, a fact that the government does not have any other option other than mobilising sufficient resources to finance the budget for the next financial year. Given the performance of the taxmen on this account in the outgoing fiscal, the task might prove daunting.
