CPD budget proposals highlight capital gain tax, inflation, VAT
Wednesday, 27 April 2011
FE Report
Local think-tank Centre for Policy Dialogue (CPD) Tuesday proposed introduction of capital gain tax on individuals to create disincentives for speculative trading and avoid further volatility in the capital market. The civil society think-tank has said this at a press conference organised at its office in the city to disclose its proposals for the upcoming national budget. CPD said submission of tax identification number (TIN) should be made mandatory for the beneficiary owners' accounts. CPD executive director Professor Mustafizur Rahman, distinguished fellow Dr Debapriya Bhattacharya and other senior fellows were present. Its head of research Fahmida Khatun read out the proposals. Fahmida said policy makers might consider a nominal percentage of tax on short-term trading (less than 12 months) with capital gains. She said the proposed tax should be deducted at the time of trading and should be considered as the final settlement of taxes. Replying a question about it, senior research fellow Khondoker Golam Moazzem said: "We want long-term investment in the capital market and this will ensure transparency in trading." He said this is common practice in many countries including South Korea, where individuals holding less than 3.0 per cent share of a listed company there is a 0.3 per cent trade tax on the sales of shares. He said another option could be to tax short-term capital gains made by individuals for stocks held for less than a year. CPD said a differentiated tax slab might be considered for this purpose. CPD observed that the tax holiday facility supposed to end in June 30 in 2011, might be considered for selected industries. The think-tank proposed revising upward the tax exemption limit to Tk 2,00,000 for individuals, Tk 2,20,000 for female assesses and Tk 2,40,000 for assesses with disability while the minimum threshold of tax to be raised to Tk 2,500. It also viewed that taking measures to rein in inflationary pressure would be the biggest challenge for the government in formulating the budget for the next fiscal year. Replying to questions, Dr Debapriya Bhattacharya said the government should strengthen the food procurement drive to relieve the poor of inflationary pressure in the next fiscal year. Mr Bhattacharya said transparency in providing subsidy and also in government expenditure should be ensured. He observed that non-tax revenues were on the decline despite their contribution to the economy being around 25 per cent. Fahmida Khatun said cash subsidies at a rate of 5.0 per cent for the textile mills which are scheduled to end in June this year should be extended for another five years. "This is particularly important in view of the European GSP (generalised system of preference) rules' policy shift from January this year," she added. She said creation of a special contingency fund for overseas Bangladeshi workers has emerged as an initiative of critical importance, particularly in view of the recent developments in the Arab world. The government might consider replacing the existing ad-valorem tariff by introducing specific tariffs for essentials items' consumption, CPD observed. It also viewed that in order to ensure food security, the government should continue with zero tariff for rice, wheat and lentils. Fahmida Khatun said the government might reduce VAT (value added tax) on edible oil both for crude and refined ones from the existing 10 per cent to zero per cent to rein in the inflationary pressure on the economy. "With a view to ensuring food security and controlling food inflation, the government should set the targets of food grain procurement in higher amount coming to 1.2-1.5 million tonnes aiming at stabilising food prices," she added. Trading Corporation of Bangladesh (TCB) should conduct price stabilisation operation during the month of Ramadan through monitoring, import and direct selling, CPD observed. It said for macroeconomic stability and growth momentum, the upcoming budget must ensure raising allocation efficiency, enhancing implementation capacity and strengthening monitoring and outcome assessment. Fahmida Khatun said that the country's economy is facing a number of challenges arising from both global and national fronts including inflationary pressure and deteriorating balance of payments situation. She said that the aggregate target of revenue collection, if fully realised, will lead to some significant improvement in the revenue-GDP ratio in FY11 (from 11.9 per cent to 13.6 per cent). "There is a need for exploring the rationalisation of subsidy including raising the tariff on energy," she said. As CPD observed, the unification of tax administration is essential in order to avoid duplication, harassment, reduce corruption and improve transparency and efficiency of tax collection. It also proposed funds to establish 'garments villages' for the woven wear sector and 'knitwear villages' for knitwear sub-sectors. On energy, infrastructure and communication, the CPD proposed that the government should attach high importance to medium and large power plants in place of smaller rental and quick rental plants keeping in mind the long-term solution of power crisis in Bangladesh as well as strengthening the allocation to BAPEX in the coming budget to carry out 3D periodic seismic readings. It suggested introduction of the provision of VAT return every year of the tax period instead of every month. It also suggested that a waiver of 3.0 per cent import duty on capital machineries for agro-based industries might help the booming sector to achieve satisfactory growth. The CPD recommendations for the next budget include giving the highest priority to rail service to ease the pressure on the over-burdened roadways as well as additional allocations for strengthening the facilities at the Chittagong and Mongla ports in view of the proposed enhanced connectivity with neighbouring countries.
Local think-tank Centre for Policy Dialogue (CPD) Tuesday proposed introduction of capital gain tax on individuals to create disincentives for speculative trading and avoid further volatility in the capital market. The civil society think-tank has said this at a press conference organised at its office in the city to disclose its proposals for the upcoming national budget. CPD said submission of tax identification number (TIN) should be made mandatory for the beneficiary owners' accounts. CPD executive director Professor Mustafizur Rahman, distinguished fellow Dr Debapriya Bhattacharya and other senior fellows were present. Its head of research Fahmida Khatun read out the proposals. Fahmida said policy makers might consider a nominal percentage of tax on short-term trading (less than 12 months) with capital gains. She said the proposed tax should be deducted at the time of trading and should be considered as the final settlement of taxes. Replying a question about it, senior research fellow Khondoker Golam Moazzem said: "We want long-term investment in the capital market and this will ensure transparency in trading." He said this is common practice in many countries including South Korea, where individuals holding less than 3.0 per cent share of a listed company there is a 0.3 per cent trade tax on the sales of shares. He said another option could be to tax short-term capital gains made by individuals for stocks held for less than a year. CPD said a differentiated tax slab might be considered for this purpose. CPD observed that the tax holiday facility supposed to end in June 30 in 2011, might be considered for selected industries. The think-tank proposed revising upward the tax exemption limit to Tk 2,00,000 for individuals, Tk 2,20,000 for female assesses and Tk 2,40,000 for assesses with disability while the minimum threshold of tax to be raised to Tk 2,500. It also viewed that taking measures to rein in inflationary pressure would be the biggest challenge for the government in formulating the budget for the next fiscal year. Replying to questions, Dr Debapriya Bhattacharya said the government should strengthen the food procurement drive to relieve the poor of inflationary pressure in the next fiscal year. Mr Bhattacharya said transparency in providing subsidy and also in government expenditure should be ensured. He observed that non-tax revenues were on the decline despite their contribution to the economy being around 25 per cent. Fahmida Khatun said cash subsidies at a rate of 5.0 per cent for the textile mills which are scheduled to end in June this year should be extended for another five years. "This is particularly important in view of the European GSP (generalised system of preference) rules' policy shift from January this year," she added. She said creation of a special contingency fund for overseas Bangladeshi workers has emerged as an initiative of critical importance, particularly in view of the recent developments in the Arab world. The government might consider replacing the existing ad-valorem tariff by introducing specific tariffs for essentials items' consumption, CPD observed. It also viewed that in order to ensure food security, the government should continue with zero tariff for rice, wheat and lentils. Fahmida Khatun said the government might reduce VAT (value added tax) on edible oil both for crude and refined ones from the existing 10 per cent to zero per cent to rein in the inflationary pressure on the economy. "With a view to ensuring food security and controlling food inflation, the government should set the targets of food grain procurement in higher amount coming to 1.2-1.5 million tonnes aiming at stabilising food prices," she added. Trading Corporation of Bangladesh (TCB) should conduct price stabilisation operation during the month of Ramadan through monitoring, import and direct selling, CPD observed. It said for macroeconomic stability and growth momentum, the upcoming budget must ensure raising allocation efficiency, enhancing implementation capacity and strengthening monitoring and outcome assessment. Fahmida Khatun said that the country's economy is facing a number of challenges arising from both global and national fronts including inflationary pressure and deteriorating balance of payments situation. She said that the aggregate target of revenue collection, if fully realised, will lead to some significant improvement in the revenue-GDP ratio in FY11 (from 11.9 per cent to 13.6 per cent). "There is a need for exploring the rationalisation of subsidy including raising the tariff on energy," she said. As CPD observed, the unification of tax administration is essential in order to avoid duplication, harassment, reduce corruption and improve transparency and efficiency of tax collection. It also proposed funds to establish 'garments villages' for the woven wear sector and 'knitwear villages' for knitwear sub-sectors. On energy, infrastructure and communication, the CPD proposed that the government should attach high importance to medium and large power plants in place of smaller rental and quick rental plants keeping in mind the long-term solution of power crisis in Bangladesh as well as strengthening the allocation to BAPEX in the coming budget to carry out 3D periodic seismic readings. It suggested introduction of the provision of VAT return every year of the tax period instead of every month. It also suggested that a waiver of 3.0 per cent import duty on capital machineries for agro-based industries might help the booming sector to achieve satisfactory growth. The CPD recommendations for the next budget include giving the highest priority to rail service to ease the pressure on the over-burdened roadways as well as additional allocations for strengthening the facilities at the Chittagong and Mongla ports in view of the proposed enhanced connectivity with neighbouring countries.