Financial corruption and burden on people

Md Rezaul Karim By Md Rezaul Karim, 8th Nov 2013 | Follow this author | RSS Feed | Short URL http://nut.bz/9qlk9fgw/
Posted in Wikinut>Writing>Essays

Big projects allure big and delicate corruptions among the top and corporate level of government wings; Padma Bridge is nothing exceptional ...

Money for Padma Bridge

Times wasted much while talks on the Bridge over the river Padma are going on, leaving aside the issue of why we would need a bridge when the mighty river may even soon become a highway if India continues to divert water upstream! One wonders why we have to beg the World Bank or any other international financial institution for help! Regardless of the financial sources whom we take money from- international institutions or friendly countries- it does not come cheaply. We have to repay the money with interest, no matter how low the rates are. On top of this, we may even have to accept humiliating conditions. So why bother?
Look at some startling figures. According to the Bangladesh Bank, the total amount of the banks’ defaulted loans was Tk 227.09 billion on December 31, 2010. A year ago, it was Tk 224.82 billion.
Compare this figure with Tk 205.07 billion, the latest estimated cost for the Padma Bridge project. So, with the defaulted loans recovered, we can have our cake and eat it too — build the bridge and still have a surplus of Tk 22.02 billion.
The simple arithmetic of loan defaults basically tells us that it is possible to fund large national infrastructure projects by mobilizing domestic resources. The country is not as poor as we are led to believe and it does not need to depend on degrading foreign aid. Years of aid dependence has made us lazy.
Look at the horrendous prices at which land or apartments in prime areas, such as Gulshan, Baridhara, Banani or Khulshi (Chittagong), are transacted- Tk 20,000–24,000 per square feet for an apartment in Gulshan. A house sold 5 years ago for Tk 8 crore is being resold for Tk 200 crore today (told by Professor Salim Rashid of University of Illinois, Urbana-Champaign). Similarly, look at the auction price for the BPL players- $700,000 for Shahid Afridi.
There seems to be no shortage of money. Imagine how many millionaires — if not billionaires- we have just based on their property values. The only shortage is of political will to tax the super-rich.
There are plenty of sources that can be used for raising domestic revenue. Consider, for example, a Padma Bridge levy on all such transactions, exceeding certain values. The levy can also be imposed on all sales in luxury shopping malls — there are many in Dhaka and major cities — as well on luxury imports such as SUVs.
Levies for particular projects are not a new idea. They are used in many countries, e.g. the German re-unification levy, or the recent flood reconstruction levy in Australia. Not long ago, we had the Jamuna Bridge levy which helped us finance a large portion of the cost domestically.
Funding specific national infrastructure projects aside, the government should seriously work to raise domestic revenue to address its borrowings from banks. Currently the tax-GDP ratio of around 10 per cent is quite low by developing country standards. According to the International Monetary Fund, the average tax-GDP ratio in Asian countries is around 15 per cent, and in Africa around 18 per cent (IMF, Working Paper, WP/10/138). In low-income countries the tax-GDP ratio is close to 14 per cent and in lower-middle-income countries, it is slightly over 20 per cent (Oxfam Research Report, ‘Progressive Taxation: Towards fair tax policies’, September 2011).
A study by the policy analysis unit of the Bangladesh Bank found Bangladesh to be the lowest tax effort (for both direct and indirect taxes) country in the sample, with a tax effort index of less than 0.6. (‘A Panel Study on Tax Effort and Tax Buoyancy with Special Reference to Bangladesh’, Lutfunnahar Begum, Policy Analysis Unit, Bangladesh Bank, Working Paper Series: WP0715, June 2007). The study also shows that Bangladesh ranks the second highest among the sample countries, with a tax buoyancy ratio of 1.235, meaning that tax revenue is quite responsive to the GDP.
These findings have important policy implications. On the one hand, a low tax effort (below one) means Bangladesh is not utilizing its full capacity of tax revenue. On the other hand, a high (above one) tax buoyancy ratio means Bangladesh has the potential for financing budgetary imbalance through raising tax revenue.
In addition to improving tax administration, Bangladesh needs to expand its tax base as well as make the tax structure more progressive. Progressivity of the taxation system is an important re-distributive instrument. Bangladesh is one of the 15 Asian countries where inequality has increased significantly over the last decades (Asian Development Bank, Key Indicators, 2007).
Addressing inequality is a constitutional responsibility of the government, especially after the reinstatement of the 1972 constitution. The growing inequality is a smack in the face of one of the state pillars- socialism.
Measures, such as levies or taxes on land transactions in prime residential areas and luxury goods and services, which enhance the Progressivity of the tax structure, are not weapons of class warfare. Instead, they are essential tools for nation building. They can kill many birds with one stone- e.g., build the Padma Bridge with pride, reduce the government’s international debt burden and fulfill the government’s constitutional responsibility to address inequality.

Tags

Bangladesh, Bangladesh Society, Governance, Government Money, Government Sector, Government Spending, Padma, Padma Bridge

Meet the author

author avatar Md Rezaul Karim
I am a teacher engaged with the Southern University Bangladesh. I Like to use my spare time by writing and reading. I take it as a fun and source of inspiration in pursuing knowledge.

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Comments

author avatar Sivaramakrishnan A
8th Nov 2013 (#)

Thought provoking, Karim. Despite democracy and freedom the rich get richer everywhere. The sad fact is nine work all their lives for one to enjoy - siva

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author avatar Md Rezaul Karim
9th Nov 2013 (#)

Thank you Siva ji, in papers we see a lot of positive changes in the index, but in reality we are losing humanity...

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author avatar akram saqib
8th Nov 2013 (#)

cruel reality of the third world countries

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author avatar Md Rezaul Karim
9th Nov 2013 (#)

May be we deserve this kind of governance!

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author avatar cnwriter..carolina
9th Nov 2013 (#)

wo Md you certainly shone the light on these happenings...many thanks...

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author avatar Md Rezaul Karim
9th Nov 2013 (#)

Thank you cnwriter, strange is that we all are enduring this!

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author avatar M G Singh
9th Nov 2013 (#)

Corruption is endemic to third world countries

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author avatar Md Rezaul Karim
10th Nov 2013 (#)

Great to see your remarks again Madan ji.

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author avatar Delicia Powers
12th Nov 2013 (#)

Keep heart my friend MD.... and thank you for this report....

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author avatar Md Rezaul Karim
14th Nov 2013 (#)

So nice of you Delicia, may you live long for many more years..

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