IMF suggestions to Bangladesh to hit the majority hard

Editorial, NewAge, October 27, 2007. Dhaka, Bangladesh

The International Monetary Fund has recently submitted a set of recommendations to the central bank. According to a report in New Age, the lending agency has recommended scrapping of zero tariff and tax exemption facilities besides expanding the coverage of value added tax. It has asked the government to implement these measures by next year and have them approved by the agency in order for it to continue to provide support. Reportedly, the prescriptions require the government to frame new tax legislations. The IMF recommendations have a myopic objective of merely increasing the exchequer’s revenue without any consideration to the welfare of the common people. Lending agencies, being removed from the ground realities, typically make such recommendations and have brought about economic crises in many countries across the world, and are thus losing their ground.

The zero-tariff facility that had been in place was mostly offered in the case of industrial raw materials and capital machinery in order to encourage industrialisation. Mirza Aziz, the finance adviser to the military-driven interim government, surprised even those quarters privy to the budget-making process, when he declared in June this year sweeping tariff measures scrapping this facility for hundreds of items that would surely impede industrialisation. Higher import tariffs of such machinery and raw material would only discourage further investment and thereby hamper employment generation, increase of wage and eventually lead to low economic growth. The tax exemption facility is in place once again, only to encourage investors to establish industrial units in the country. Scrapping this provision would only send out wrong signals. Such measures – low import tariff of raw materials and machinery, and tax exemption – have been followed by countries, including those that today instigate these agencies to recommend the contrary, on their path towards economic prosperity and development.

The value added tax, as we have previously mentioned, burdens the common man since it is paid by everyone and at the same rate regardless of their affluence. Increase in the coverage of this indirect tax would only mean that the common people, especially those from the poorest section of the populace, who are outside the income tax net, would have to pay taxes. This tax, in the case of education and health services, would in fact amount to penalising citizens for seeking enlightenment or for striving to be in good health. Such measures would also seem to deny that the government itself is obligated to provide such services to its citizens.

We find the recommendations made by the lending agency inappropriate and inconsiderate of the plight of the common man. These recommendations, increasingly nudging the state towards a free market economy that results in inequity and disparity, are more likely to bring about crises and economic devastation than genuinely trigger wholesome development, like they have done in many other countries. We expect that the government will not give in to the pressure of the lending agency for the sake of national interest.

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