Perks For Allowing Opaque Capital

Giving access to opaque capital Calls for perks substantial.

IMF in its latest world economic outlook has lowered growth projection for Bangladesh. It forecast a GDP growth of 5.7% in this fiscal year. It anticipates an inflation rate of 9.7% for the current year,declining to 6.0% in 2025.

As per the conditions laid out by the IMF, government implemented market-determined fuel price mechanism. On two occasions, prices of fuel were lowered: diesel witnessed the lowest slash as it may prompt smuggling activity while petrol and octane witnessed the biggest fall. But such reduction in fuel prices has not pronounced yet in bus fare and good prices. Maybe one or two months later one will see the development.

Meanwhile, quintessential kitchen items see another round of increase in prices. As contractionary monetary policy is being pursued in the USA,consumers with tight pocket slashed their purchase of imported clothes,resulted in -19% growth in Bangladeshi RMG export to USA last year. However, IMF is optimistic that contractionary monetary policy has not slowed down the economic activities in advanced economies and price levels in general coming down in these countries.

At one hand ,export to USA shrinks. On the other, revenue collection lags the target and government fails to meet the March target of forex reserve.

While revenue increasing measures are being rolled out one by one, tough criticism casts shadow over them. Imposition of VAT on remittances took a particular hit. Again some argued this might lower the inward remittances. However, UAE already imposed such VAT on outgoing remittances and exchange houses said they would comply.

Another idea of taxing the capital gains in stock market met stiff resistance. Reason for not providing assistance in time of capital loss fuels the resisting argument. However, stock market is one of the areas where opaque capital is allowed and one with capital below Taka 100,000 cannot invest here. That means people below minimum taxable income cannot operate here. NBR needs perks for allowing undocumented money into the stock market. Taxing the capital gains is one of those perks. In real estate sector, another area where opaque capital is allowed, NBR hiked the registration fees. This is clearly perks for the government. However, the perks are not enough to improve the situation in these sectors. Any assistance to stock market is contradictory to ongoing subsidy-cutting policies. It may prolong the inflation containing process. So far our assumption about economy gaining confidence after election proved wrong. Prioritizing the goals and sticking to it should be the prudent step. A note of caution by the IMF for advanced economies should be applicable for us too:

"On the upside, looser fiscal policy than necessary and assumed in projections could raise economic activities in the short term,although risking more costly policy adjustments later on."(see IMF World Economic Outlook April 2024, page- xvi)

By the same token,despite protest from the concerned minister, subsidies to ICT sector should be discontinued. NBR should review its policies regarding giving subsidies to sectors that have access to cheap/cost-free/undocumented capital. These two should be decoupled. And NBR should have perks(in the form of taxes/fees) for allowing sectors to enjoy undocumented money.