Tax-free income limit for ‘July Warriors’ proposed at Tk5.25 lakh

From July onwards, the special incentive rate for government employees will be increased from the current 5%, officials from the Ministry of Finance told The Business Standard.

Under the new plan, officers and employees in grades 10 to 20 will receive a total of 15% special incentive, which includes the existing 5%. Meanwhile, those in grades 1 to 9 will get a total of 10%. This means an additional 10% incentive for grades 10 to 20 and an additional 5% for grades 1 to 9.

The move is expected to cost the government approximately Tk7,000 crore.

Before the 2024 elections, then prime minister Sheikh Hasina had announced an additional 5% special incentive on top of the annual 5% increment for government employees, effective from July 2023, to offset high inflation.

Finance Adviser Salehuddin Ahmed announced the increase in the special incentive today (2 June) during the budget speech for the upcoming fiscal year. However, the budget documents did not specify the exact increase amount.

"Considering the fact that there has been no new pay structure since 2015, we are proposing to increase the special benefits for government employees," Salehuddin said.

For the upcoming fiscal year, Tk84,114 crore has been allocated for government employees' salaries and allowances. This is higher than the original allocation of Tk81,580 crore in the current fiscal year, which was later reduced to Tk79,247 crore in the revised budget.

Nearly 50,000 government employees are expected to retire next year, which will raise the number of pensioners to 8.5 lakh. Despite rising pension costs, the allocation for salaries and allowances is not increasing proportionally, even with the higher special incentives.

When asked about the increase, Fahmida Khatun, executive director of the Centre for Policy Dialogue, told TBS, "Inflationary pressure is increasing on everyone. To control it, the Bangladesh Bank has adopted a contractionary monetary policy. At a time like this, if the government increases special benefits for its employees, it may further fuel inflation.

"According to various estimates, increasing these benefits would lead to an extra cost of nearly Tk7,000 crore. This could also worsen inequality, since the private sector is unlikely to raise salaries."

She added, "In such a situation, the government must take other steps to ensure social equity, so that people in the private sector do not bear a heavier tax burden. To reduce financial pressure on them, government services should be made available at low or no cost."

According to the budget documents, the government will spend Tk13,342 crore on basic salaries for officers, Tk30,001 crore on salaries for staff, and Tk40,771 crore on various allowances for officers and staff in the upcoming fiscal year.

In comparison, the revised budget of the current fiscal year allocated Tk12,217 crore for officers' salaries, Tk28,675 crore for staff salaries, and Tk38,355 crore for allowances.