At a time when the pandemic has hit middle-class people hard with job cuts and income losses accelerating economic inequality, the finance minister has come up with a new budget, reducing their tax burden to make daily life easier.
However, upper-class people who became wealthier during the pandemic, thanks to a limited scope of expenditure, saw an increase in tax rates as the minister shifted the tax burden to them, aiming to reduce growing economic inequality.
In the new budget for the fiscal 2021-22 placed in parliament on Thursday, Finance Minister AHM Mustafa Kamal proposed withdrawing the provision of paying surcharge on wealth when there is no taxable income and that of paying minimum surcharge as well.
"This will make compliance with the provisions of surcharge easier, and will also decrease the tax burden of the middle class," said the minister in his budget speech.
However, a surcharge on wealth was proposed to raise to the highest 35% in the new budget from the existing 30%.
For easy and simple application of surcharge, the new budget proposed five slabs in place of the existing seven.
The surcharge on the value of wealth between Tk3 crore and Tk10 crore was proposed to be 10% and it is currently the same, but the slab was up to Tk5 crore. Net wealth above Tk10-Tk20 crore will come under a 20% surcharge, when currently, a 15% surcharge applicable for wealth of the highest Tk10 crore.
Wealth of above Tk20-Tk50 crore will come under 30% to 35% surcharge, while it is currently 25% to 30%, according to the budget document.
Welcoming the initiative, Dr Selim Raihan, executive director of the South Asian Network on Economic Modeling (Sanem), said it will help reduce economic inequality to some extent.
A recent study of Sanem found that 55.9% households experienced a decline in income, 8.6% lost work, 7% experienced reduced working hours, while 33.2% claimed that their work had stopped for a while in 2020 due to the pandemic.
This led to a rise in inequality in terms of Gini coefficient (income inequality) from 0.31 in 2018 to 0.33 in 2020, according to Sanem.
The proposed budget extended VAT exemption for local manufacturers which will keep prices of consumer goods stable, giving middle-class people relief.
Manufacturers of various home appliances, kitchen products and other lifestyle products like LPG cylinder, refrigerator, freezer and its compressor, air conditioner and its compressor, motor car and vehicles, blender, juicer, mixer, grinder, electric kettle, rice cooker, multi cooker, and pressure cooker will see their existing VAT exemption extend.
This initiative will have an indirect impact on consumers' life as prices of such products will remain stable after the budget, said Golam Murshed, managing director of local manufacturer Walton Hi-Tech Industries.
He said this initiative is good for both business entities and consumers during this crisis period.
When spending priority has changed amid income losses during the pandemic, such an initiative will bring back consumers, helping to boost consumption, said Selim.
When dependency on technology has increased because of the work-from-home trend amid the pandemic situation, the finance minister also addressed the new change in the budget, facilitating local manufacturers of IT sectors.
The VAT exemption has been extended by two years on local manufacturing of printer, toner cartridge, inkjet cartridge, parts of computer printer, computer, laptop, AIO, desktop, notebook, notepad, tab, keyboard, mouse, barcode/QR scanner, RAM, PCBA/motherboard, power bank, router, network switch, network device/hub, speaker, sound system, ear phone, head phone, SSD/portable SSD, hard disk drive, pen drive, micro SD card, flash memory card, CCTV, monitor (not exceeding 22"), projector, printed circuit board, e-writing pad, USB cable, data cable, and digital watch.
The Covid-19 has increased sanitisation costs in daily life, which has also been addressed in the new budget, proposing VAT exemption for manufacturers, which will eventually make a positive impact on citizens' life.
In the new budget, the finance minister proposed exempting VAT on the production of sanitary napkins at local manufacturing stage to ensure health protection of women.
The two-year extension to the existing VAT exemption on imports of certain raw materials used for production of sanitary napkins and diapers has also been proposed. The existing exemption facility for Covid-19 test kits, PPE and vaccines at import, manufacturing and trading stage will continue too.
The budget also proposed withdrawing a 10% supplementary duty from locally manufactured "Long Pan" to make sanitation facilities cheaper for rural people.