High tax, poor market monitoring keep prices in Bangladesh higher than neighbours: CPD

Infographic: TBS

Consumers in Bangladesh have to pay higher to purchase goods and services – domestic or imported – compared to other countries in the South Asian region due to the existing tax policy and market distortions.

Revealing its findings on Thursday, the Centre for Policy Dialogue (CPD) showed the price of half a kilogram of bread is Tk62 in Bangladesh, the highest in the South Asia region, whereas it costs Tk45 in Pakistan and Tk48 in India and Nepal.

Even in Sri Lanka, which is going through an economic turmoil, the cost of half a kg of bread is Tk50, substantially lower than that in Bangladesh.

The CPD said the combined effects of Covid-19, the global crisis stemming from the ongoing Ukraine-Russia war and market distortions had pushed inflation to a level where many found it hard to even manage basic food costs, excluding meat and fish, for their families.

The think tank recommended proper measures to ensure competition in the market, eliminate syndicates and price manipulation, and also expand food and cash support to help lower-income earners manage the cost of basic food for their families.

CPD Executive Director Dr Fahmida Khatun said the taxation policy played a major role behind high inflation in Bangladesh, pointing to the substantially high tax to import at least 29 essentials.

The indirect taxes – advance income tax, advance tax and regulatory duty – pushed prices up and increased inequality, she said, recommending it be either eliminated or reduced for essential food.

Fahmida also highlighted the seven issues plaguing the economy – the dollar crisis, energy crisis, food crisis, high inflation, Covid-19, the Ukraine war and impacts of climate change. She said all these were interlinked and were only deepening.

Dr Khondoker Golam Moazzem, research director of the CPD, said the policymakers of the government had wrongly characterised the prevailing crisis as a short-term one.

He said the crisis regarding food, power, energy and external trade will turn into an employment crisis, which will lead to more poverty, extending to become a political crisis.

Expressing concern over the reliability of the inflation data, Fahmida Khatun said both the rates of food inflation and non-food inflation are rising.

According to findings of a CPD research, several necessities, whether they are produced locally or imported, are more costly in Bangladesh than in other developing and developed nations.

Fahmida said Bangladeshi consumers have to pay Tk684 for 1kg of beef, which was the highest in the region and substantially above the global average of Tk549.

Citing the CPD report, she said the same costs Tk375 in Pakistan, Tk580 in India, Tk465 in Nepal and Tk545 in Sri Lanka.

Recommending an increase in the minimum wage in all industries so workers can afford basic food, she said aside from food costs, the charges for internet, education and healthcare are also higher in Bangladesh.

In the absence of support from the government, out-of-pocket expenditure on healthcare for a four-person household was equivalent to Tk2,625 per month in 2019, she added.

She said the average monthly cost of a basket of 19 common food items for the same household in Dhaka city reached Tk22,421, a 28% increase from Tk17,530 in January 2019.

On economic data, the economist said Bangladesh registered 9.51% inflation in August, which fell to 9.1% in September. Yet, consumers are facing higher prices in the market, she said, adding the Consumer Price Index (CPI) produced by the Bangladesh Bureau of Statistics (BBS) did not reflect the real scenario of the price hike.

The BBS was producing the CPI with the basket of goods made in 2005, meaning it wasn't updated in 17 years, despite changing consumer patterns due to increased income and introduction of new products and services in the economy.

She said all multinational development partners are revising the outlook of the global economy, reducing growth forecasts and increasing inflation. At least 45 countries are set to face a food crisis and Bangladesh is one of those, according to the Food and Agriculture Organisation.

Bangladesh is also facing the impact of the global crisis as it is linked with the global economy in terms of trade, import, export, foreign direct investment and remittances.

She also said energy and power shortages had reduced production in industrial sectors, particularly those dependent on gas, like textile, ceramic and glass, expressing concern over the decision to import 13% less petroleum in 2023.

Fahmida said the domestic LNG supply has been halved as Bangladesh failed to buy liquefied natural gas (LNG) from the spot market.

The economist also said the country has a diesel storage of 61 days, but for octane it was only 19.6 days.

Stock of other fuel items was also lower than the desired level of 60 days.

On electricity, she said although production had increased from 12,000 to 14,000 megawatts, mismanagement was still a problem. 

The power generation and load-shedding data also did not match.

In order to deal with the electricity and fuel crisis, she urged speeding up cost-effective government initiatives and giving more importance to internal gas extraction instead of imports.

She also recommended formulating a committee comprising the representatives from the Prime Minister's Office, Ministry of Finance, Ministry of Planning, Ministry of Commerce, Ministry of Power, Energy and Mineral Resources, Ministry of Food, Ministry of Agriculture, the Bangladesh Bank and National Board of Revenue.

Fahmida further advised the government to prioritise macroeconomic stability over higher growth.

"In view of the current economic turmoil, both at the national and global levels, macroeconomic stability should be the primary focus of economic policy – starting from suppressing inflationary pressure for the disadvantaged population groups, meeting the power and energy demand and taming the exchange rate volatility," she added.