The budget faces additional pressure from businesses

As the government builds its national budget for FY25, intense speculation and analysis surrounds its economic strategies.

With plans to set higher revenue targets, raise bank interest rates and possibly cut the tax-free allowance while meeting International Monetary Fund conditions, experts are debating the extent to which the government will prioritize business expectations in this critical fiscal plan.

As the scope and scale of the budget increases, the pressure on revenue collection increases.

On June 6, Abul Hassan Mahmood Ali is scheduled to present his – and the newly elected Sheikh Hasina administration’s – first budget for the 2024-2025 financial year in parliament as finance minister.

Several finance ministry officials indicated that the budget is being prepared with a revenue target of around Tk 5.5 trillion, with the National Board of Revenue (NBR) expected to generate a major share, around Tk 4.8 trillion.

Business leaders say the heavy emphasis on revenue collection with ambitious targets in the coming fiscal year could negatively impact the country’s industry and production system.

Entrepreneurs and industry owners are discussing new demands with the government to boost Bangladesh’s economy, hoping they will be included in the upcoming budget.

It is speculated that under the pressure of these demands, the government may adopt a compromise strategy, but the final details will be known only after the budget is announced.

Several government ministers have hinted that the future budget could be Tk 8 trillion compared to the current fiscal year’s budget of Tk 7.62 trillion.

To secure a $4.7 billion loan from the International Monetary Fund (IMF), the government agreed to several conditions, including rationalization of tax exemptions.

The NBR aims to increase tax collections by 0.5 percent of gross domestic product or GDP by the end of the 2023-2024 fiscal year.

To achieve this goal, the government also plans to eliminate tax exemptions and tax holidays and reduce tax exemptions to more reasonable levels in certain sectors.

Economists suggest that sectors benefiting from long-term tax holidays should be brought down to a manageable level, which appears to be a move by the NBR.

Business organizations are assessing how this could impact local industries and the clothing sector, which currently benefits from tax breaks, and businesses are working to maintain these benefits.

Recently, a group of business leaders met with Prime Minister Sheikh Hasina to discuss several demands, including maintaining current levels of tax exemptions and not inflating tax rates.

They also demanded that the interest rate on bank loans remain capped at 15 percent.

In early May, Bangladesh Bank adjusted the interest rate cap from 9% to a market-based approach, allowing banks and customers to determine prevailing interest rates.

Mohammad Hatem, president of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), told bdnews24.com: “There are many challenges. In the current circumstances, customers are unable to negotiate interest rates with banks. As a result, they will have to accept the rates set by banks.

“However, I spoke to the governor of Bangladesh Bank and he believes that interest rates are likely to be around 14 percent.”

FBCCI PROPOSES TO CANCEL AIT

The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) has submitted 381 proposals to the government, which include suggestions such as non-deduction of withholding tax on agricultural consumer goods, exemption from Advance Income Tax (AIT) to boost the export market, reduction in corporate tax rate for local industries to promote growth, speed up customs collection processes, automate revenue collection and increase NBR efficiency.

Currently, the corporate income tax rate is 27.5% for unlisted companies and 20% for listed companies.

FBCCI president Mahbubul Alam told bdnews24.com that he met Hasina and she assured them that their proposals would be considered favorably.

Alam highlighted his hopes for a budget that supports business, investment and industry, and highlighted his request for guidelines to introduce automation across all sectors by lowering rates.

He also emphasized to avoid an increase in bank loan interest rates, which, in his opinion, will hamper industrialization and investments in the country.

RMG SECTOR APPLICATION FOR WITHholding TAX REFUND

The ready-made clothing sector receives the most tax relief, generating 83 percent of export revenues.

Last financial year, the sector’s exports totaled $46 billion.

At one point, withholding tax in the RMG sector was 0.50%. It was increased to one per cent for the financial year 2023-24.

The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) has been pushing for the withholding tax rate to be restored to 0.50% in the upcoming budget.

BKMEA chief Hatem said: “There is an ongoing negative impact on the sector. There was an increase in electricity and gas prices, a depreciation of the price against the dollar and a decline in purchase orders. If tax holidays are taken away from those receiving them, this sector risks collapse.”

SM Mannan Kochi, president, BGMEA, said: “Urgent measures are required to address the existing challenges in providing essential services to the garment sector. Complexities related to customs duties, deposits, HS codes and fabric weights need to be addressed quickly.”

BGMEA budget requirements include:

– Reduction of income tax on cash assistance from 10 percent. up to 5 percent

– Abolition of VAT on raw materials.

– Tax exemption for the import of fire-fighting and occupational health and safety equipment used in industrial plants.

Reducing the income tax on the exporters’ retention amount from 20%. up to 10 percent

Mannan justified these demands by stating: “We support the continuation of all current incentives until 2029, followed by the introduction of alternative and timely policy support to address the challenges of eliminating LDCs.”

He said: “We have also asked for specific policy support to encourage investment in new markets, new products and non-cotton textiles, which we believe will drive our future growth.”

The leader of the business association also urged the government to introduce food rationing to protect workers from the rising cost of living, which is now approaching 10 percent in the economy.

REHAB ENCOURAGES INVESTMENT OF UNDISCLOSED INCOME

The Real Estate and Housing Association of Bangladesh (REHAB), which represents real estate players, has been pushing for allowing undisclosed income to be invested in this sector without facing scrutiny.

REHAB president Md Wahiduzzamant told http://bdnews24.com that they would seek greater benefits in the upcoming budget.

REHAB requests include:

– Reducing registration fees for apartments and plots and related fees, as well as reducing tax from 12%. up to 7 percent

– Restoration of the increased rate of purchase and sale of plots to 3.5% for the second time.

Reduction of withholding tax from 15%. up to 4 percent for land owners.

– Withdrawal of 4 percent and 3 percent taxes levied on land in areas covered by RAJUK Capital Development Authority and Chattogram Development Authority.

– Introduction of tax holidays for a period of five years in metropolitan and cantonal areas and for a period of 10 years outside municipal boundaries in the housing sector.

BARVIDA’S PROPOSAL

Md Habib Ullah Dawn, president of the Bangladesh Association of Remanufactured Vehicles Importers and Dealers (BARVIDA), called for a “smart customs policy”.

“I believe it is time to adopt a smart tariff policy,” he said. “In light of this, the budget should provide continuity to ensure convenience for both buyers and sellers.”

BARVIDA’s budget requirements include:

– Restructuring of CC plates and additional customs duties on hybrid cars.

– Reducing import duties on hybrid cars and 2000 cm3 minibuses. Currently, there is a 20% discount on these vehicles. additional duty which should be reduced to zero.

– Reducing import duties on hybrid cars and jeeps (1,801 cc to 4,000 cc).

– Revision of CC plates and additional tariffs for fossil fuel cars.

– Withdrawal of the 20% additional duty on electric vehicles.

– Abolition of the 20% surcharge on 10-15-seat minibuses used in public transport.

– Clear guidance on environmental subsidies or carbon taxes.

NBR Abu Hena chairman Md Rahmatul Muneem told bdnews24.com: “Every year we aim to raise the revenue target by adopting new strategies. We will have to wait for the budget announcement to see which strategy is adopted this time.”

Given the current situation, decisions on tax rates and other demands of trade leaders in the upcoming budget will be revealed after June 6.

(English writing by Arshi Fatiha Quazi)