The finance minister has done a good thing by resolving to revise his proposal for an increase in excise duties on bank accounts.
The proposed increase would have hit hard the lower to middle class families in the country.
In spite of what the finance minister previously said, the truth is, a bank balance of Tk1 lakh does not make a person rich in Bangladesh today.
For many people, it just means they are getting by and trying to make provisions for the future: Children’s educational expenses, emergencies, and rainy day funds.
We do not even have adequate social safety nets in Bangladesh, so if a family falls into hard times, their accumulated savings is usually their only lifeline.
There are several arguments against a tax increase. On the one hand, a tax on bank accounts, which is essentially a tax on savings, can be bad for long-term growth.
Savings are necessary for capital formation and capital formation is necessary for long-term growth. A lack of savings means lower investment, which, as a growing economy, we need a lot of.
Secondly, the proposed tax is ultimately regressive.
The increase would raise the existing amount of tax by a flat 60%-62.5%, meaning the tax rate will continue to be regressive.
Finally, with a high duty on bank balances, people may be encouraged to find alternative means of conducting transactions outside the financial system, and that is definitely not what we want.
We should be striving toward the financial inclusion of all people, including low and middle income groups -- rethinking the excise duty is the right move.