Karzai, Obama to rebuild strained relations

President Barack Obama said a visit to Washington by President Hamid Karzai of Afghanistan had “reaffirmed their friendship”, as the two leaders engaged in a determined public effort to mend fences.

After months of traded insults which had once threatened the cancellation of Mr Karzai’s trip, Mr Obama said that strains had been “over-stated”.

“Obviously there are going to be tensions in such a complex and difficult environment and a situation in which both Afghans and Americans are making enormous sacrifices,” he said at a press conference in the grand East Room of the White House.

Mr Karzai reciprocated, saying: “There are days we are happy, there are days we are not happy, but it’s a mutual relationship with a common objective.”

The Obama administration has rolled out the red carpet for Mr Karzai’s four-day visit, which ends on Thursday with a visit to Arlington National Cemetery, where many US soldiers who have died in Afghanistan are buried.

With casualties rising and the war becoming more unpopular in the US, senior officials had publicly rebuked the Afghan leader for failing to clamp down on corruption, after he was returned to power for a second term in last year’s fraudulent elections. Mr Karzai retorted that he was thinking of joining the Taliban if the West continued to pressure him to enact reforms.

Having decided to keep criticism private, Mr Obama noted yesterday that progress had been made on corruption, but said “much more” needed to be done in terms of good governance. Mr Karzai vowed to spend US financial resources with “extreme care.”

Both leaders appeared to have aired their own concerns in their talks, which came as the US geared up for a major military operation in the Taliban stronghold of Kandahar province.

Behind the scenes, Mr Karzai pressed for greater support for plans to reintegrate Taliban insurgents, beginning at a “peace jirga” later this month.

Washington is concerned that invitations should not be extended to Taliban leaders in power before the September 11, 2001 attacks orchestrated from then al-Qaeda safe havens.

Steve Clemons, a senior fellow at the New America Foundation think tank, said: “The US is very, very ambivalent about this. There is a lot of discomfort especially among the generals who dislike the idea of giving away too much politically to the insurgents.

Meanwhile, Afghan President Hamid Karzai rounds out his Washington visit Thursday, meeting with congressional leaders and touring the burial grounds of many US troops killed in the Afghanistan war.

During the flagship event of the four-day visit intended to mend fences after months spent trading barbs, US President Barack Obama insisted Wednesday that flared tensions between the Afghan and US governments were “overstated” as Karzai staged an effusive show of support for American war goals.

The leaders met amid pomp at the White House after awkward public exchanges that strained their alliance and complicated Obama’s gamble on a 30,000-strong troop surge designed to forge a US exit from the Afghan battlefield.

Bangladesh moves up economic liberty index

Bangladesh has made significant strides in the Index of Economic Freedom world rankings, making its economy the 137th freest in the world.

In the ranking, the country’s overall score was 51.1, which is 3.6 points higher than that of the last year, according to the report jointly prepared by USA-based think tank Heritage Foundation and the Wall Street Journal.

In the Asia-Pacific region Bangladesh has been ranked 29th out of 41 countries.

“The gains reflect Bangladesh’s improvements in trade freedom and investment freedom,” according to the report.

In the index, the country for the first time graduated itself from the ‘Repressed’ category to the category of ‘Mostly Unfree’ countries.

Praising the country’s performance in last five years, the report said, “Bangladesh has enjoyed impressive economic growth of around 6 percent per year over the past five years driven mainly by its limited but growing services and industrial sectors.”

It, however, said, “Structural and institutional weaknesses remain serious impediments to sustaining such high economic growth rates.”

It said Bangladesh’s economy remains overly dependent on agriculture, which accounts for almost 20 percent of GDP and employs more than half of the labour force.

It also said the heavily politicised weak regulatory regime of the country often tends to crowd out private investment while corruption, coupled with onerous bureaucracy, is still perceived as pervasive.

This year the ranking covered 183 countries measuring 10 components of economic freedom. Score in each category ranged from 0 to 100.

The components were business freedom, trade freedom, fiscal freedom, government spending, monetary freedom, investment freedom, financial freedom, property rights, freedom from corruption and labour freedom.

In the component business freedom Bangladesh scored 59.4 out of 100. The report said in Bangladesh it requires 44 days on average to start a business while the world average is 35 days. However, obtaining a business license requires less than the world average of 18 procedures.

Bangladesh’s score was 58 in trade freedom component. Import and export restrictions, numerous border taxes and fees, burdensome import licencing rules, export subsidies, government monopolies, inefficient and corrupt customs administration, among others, add to the cost of trade in the country, said the report.

Twenty points were deducted from Bangladesh’s trade freedom score to account for non-tariff barriers.

In the monetary freedom component where the country scored 66.6, a total of 15 points were deducted from this component to adjust for price-control measures that distort domestic prices for petroleum products, some pharmaceuticals, and goods produced in state-owned enterprises.

About the financial freedom the report said Bangladesh has made modest progress in recent years in its banking sector adding that the sector is underdeveloped and provides a limited range of banking services.

Bangladesh’s state-owned commercial banks, which account for more than 30 percent of total banking system assets, undermine the sector’s efficiency, it said. Bangladesh scored 20 in the financial freedom component.

In the global context Hong Kong, Singapore, and Australia are the top three scorers in the index while North Korea, Zimbabwe and Cuba were top from the bottom.

In South Asian context Bangladesh’s position was only above Maldives whose rank is 148th. Bhutan’s position was the 103rd, Pakistan’s 117th, Sri Lanka’s 120th, India’s 124th, and Nepal’s 130th.

Though Afghanistan was covered in the index, it was not given any score.

FBCCI demands tax cuts

The country’s apex business association demanded that people earning less than Tk 2 lakh per year should be exempted from paying tax.

At present, those earning more than Tk 1.65 lakh per year are required to pay tax.

Annisul Huq, president of the FBCCI made this recommendation whilst setting out his organisation’s proposals in a pre-budget discussion held on Saturday.

Whilst this proposal was supported by other businessmen during the open discussion, former caretaker government advisor AB Mirza Azizul Islam disagreed.

Azizul Islam said that the limit, at which tax should first be paid, should be fixed in line with the national per capita income.

Comparing Bangladesh to India, the limit in Bangladesh should be Tk 1.25 lakh he said.

“And even if it is raised, it must not be over Tk 1.75 lakh.”

FBCCI also suggested a cut in corporate tax as it was “the highest in the world” and said that lowering it would raise revenue collection.

In his presentation, Annisul Huq proposed 25 percent tax for listed companies, 30 percent for non-listed ones and 40 percent for banks, financial institutions and mobile phone operators.

On this issue Azizul Islam agreed that there should be a cut in corporate tax as it was “high”.

“However, it should be reduced gradually.”

He proposed a reduction between 2 and 2.5 percent for the next year.

The former finance advisor, however, was sceptical about the proposed rates for banks and financial institutions.

“The spread is still too high. Whenever, the lending rate is lowered the banks also slash their deposit rates.” he said.

He said that banks should still have their taxes lowered.

Finance minister AMA Muhith, agreed with his predecessor on banks and financial institutions, but noted that “their gains from the stock market are not taxed either.”

Muhith called for views on imposing tax on capital gains from the stock market, a provision which the government is considering for inclusion in the next budget.

On overall corporate taxes, Muhith felt that they were “not that high”.

The trade body also asked for a restructuring of import duties to favour local industries.

Many of the FBCCI recommendations involved measures that would protect local industries from foreign competition and foster further industrialisation.

Huq said that a reduction in import duties and raw materials along with higher duties on imports of finished goods would foster domestic industrial growth.

On this issue, Azizul Islam also felt the import tax structure should be revised.

“The current structure is aligned with the one formulated during the early ’90s when we were in the spirit of trade liberalisation,” he added.

Finance minister AMA Muhith, however, did not make any comments on income tax and import tariffs saying it was “tough to comment at this moment”.

“Our aim, however, is liberalisation and everything would be considered accordingly.”

Measures to widen the tax net, simplification of income tax procedures, VAT reforms and setting up a National Tax Tribunal also came up in FBCCI’s recommendations.

Responding to the issues, Muhith promised that a tax tribunal would be formed within this fiscal year.

He also said that reforms in VAT and duty would be completed by the next fiscal year.

“There will be no Income Tax Ordinance in the next fiscal year,” added Muhith indicating that a full-fledged law would be formulated.

On simplification of income tax return, Muhith said the current four-page income tax return form might be reduced to two pages to make it easier for people to file.

The FBCCI discussion also stressed power and energy issue along with the necessity of increased focus on railway and waterways development, and population control measures.

It also insisted on urgent measures to ease the traffic congestion of Dhaka. Annisul Huq said in his presentation that traffic congestion caused a loss of $1.84 million every day.

“Annually it stands at about $670 million per year.”