Monday, September 24, 2018 | ePaper

Middle income people will suffer due to the pressure of rising food inflation

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THE Tk 464,573crore budget for the coming year has proposed the continuation of the existing tax-free income ceiling and tax rates for individuals and companies. News media quoting CPD's post-budget discussion reported that the budget will benefit the high- and low-income people, leaving the middle and lower middle-class people strained. It apprehends that policymakers do not feel the need to hear the voices of the largest population to the extent they feel necessary to pay attention to the poor for a vote and the affluent class for election finance. The proposed budget has asked for extending social safety net while VAT on various goods and services such as flats of up to 1,100-square feet, furniture, and clothes have been increased.
The rise in indirect tax by way of VAT will create a burden on the shoulders of middle and lower middle incoming people. Corporate tax for banks, financial institutions, and insurance companies has been slashed and the perquisite allowance has been raised to Tk 5.50 lakh from Tk 4.75 lakh, both of which will please high-income people. The CPD said the social safety net coverage that has been expanded in the proposed budget will address the issue of 'inclusivity of growth' but the medium- to long-term challenges such as inequality of both income and wealth, unplanned urbanization, and the other issues were ignored. The budget's lack of sensitivity towards the existing and emerging concerns such as the pressure on the balance of payment and exchange rate, inflationary expectations as well as scant attention to areas requiring reforms is upsetting.
Under the circumstance, a spike in VAT rates for goods and services, including advance trade VAT at the import and trading stages from 4 percent to 5 percent, will increase prices and thereby inflation, which is already creeping up. Inflation is likely to rise in the incoming fiscal year and would not be stable at 5.6 percent as projected in the budget.
A large number of lower- and middle-income people will come under the tax net for the first time next fiscal as the tax-free income limit has been kept unchanged for the fourth year now -- without considering the added pressure of rising food inflation and decreasing average monthly real wage. We endorse the CPD's suggestions to increase the tax-free income ceiling to Tk 300,000 and the first slab of tax rate should be fixed at 7.5 percent instead of 10 percent to ease the pressure on the lower middle-income families.


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