Several demands from major trade bodies were left unaddressed in the proposed new budget for FY25, announced on Thursday. One of the key requests was to reduce the source tax from 1% to 0.5%, but the new budget failed to incorporate this change. Additionally, demands for a reduction in corporate tax and other tax-related benefits were not met.
Concerns were raised regarding the government's bank borrowing, which could strain local banks already facing liquidity issues. This borrowing may also restrict credit flows to the private sector.
SM Mannan Kochi, president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), expressed disappointment that incentives on manmade fibre, another of their demands, were not included in the budget.
“We also demanded to reduce source tax to 0.5% which remains unchanged. If these demands are not met, it will be difficult to continue business,” he added.
Mahbubul Alam, president of the Federation of Bangladesh Chamber of Commerce and Industry (FBCCI), said that they proposed to abolish advance income tax (AIT) and advance tax (AT), but it is still in place.
“We again propose to abolish those in the final budget. Moreover, we also demand to raise the individuals’ tax-free income to Tk4.5 lakh,” he added.
He pointed out that to reach the revenue target of Tk5,45,400 crore, we need to expand the tax base. However, solely burdening existing taxpayers with more taxes could make collection challenging.
A significant portion of the budget shortfall will be covered by increased bank borrowing. This heavy borrowing could make it harder for private-sector businesses to secure loans.
Ashraf Ahmed, president of the Dhaka Chamber of Commerce and Industries (DCCI), urged a reconsideration of proposed tax cuts in key sectors like readymade garments, microcredit, remittance, poultry, and fisheries. He also criticized the government's reliance on bank borrowing to fund the FY25 deficit.
He expressed concern about the proposal to legalize black money with a 15% tax, saying it would strain private sector credit flow, especially given the current liquidity crisis in banks. He suggested exploring alternative financing methods like the capital market and public-private partnerships (PPP).
Anwar-ul-Alam Chowdhury (Parvez), president of the Bangladesh Chamber of Industries (BCI), emphasized the need for the budget to address barriers to business more effectively.
“This new bracket of up to 30% income tax will reduce the amount of investment. These all factors are related. Thus, corporate tax cuts are not that effective,” he added, saying that Black money whitening was there before but the government did not get much benefit from that facility. It was given this year too, but it would have been better if it had been given in the form of investment rather than fixed tax.
Syed Almas Kabir, former president of Basis, said that the tax exemption of three years in the IT sector is a good move, however, it should be longer to attract more investment.
However, he said that the withdrawal of NTTN, the withdrawal of tax exemption on web hosting and cloud services will discourage investors and will hike the cost of hosting and data centres.
Moreover, supplementary duty on internet services has been increased to 20% from the existing 15%, which is controversial with digital connectivity.
Syed Ershad Ahmed, president of AmCham, said that the sudden reductions in existing duty and tax facilities by imposing a 1% duty on capital machinery, parts, etc imported in EPZs and high-tech parks could prompt foreign investors to reconsider their commitments, undermining their confidence.
Zaved Akhtar, president of FICCI, said that the budget lacks allocation or specific directions for the automation of Tax, VAT and customs administration, which would increase efficiency and simplify the tax collection process.
Fahmida Khatun, executive director of the CPD, said that the economy has been under pressure for the last two years and macroeconomic stability has become fragile.
The proposal to whiten black money with 15% tax is frustrating and this is morally, economically, and socially unacceptable. The government will not get much tax revenue from it, she added.
She also said that bank borrowing will increase to cover the budget deficit, resulting in a credit deficit to the private sector, thereby hampering investment. The targets given for investment (private and foreign), inflation, reserves etc seem unrealistic and reflect IMF prescriptions.
Ashikur Rahman, principal economist at Policy Research Institute (PRI), the FY25 budget is only 4.7% higher than the previous year with a deficit of 4.6%. The effective budget deficit is expected to be around 4% of GDP and this contractionary fiscal approach is strategically sound and will help stabilize the economy in the coming years.
“There is a concern with the government’s plan to borrow over Tk1.35 lakh crore from domestic banks in FY25 to finance development spending which could significantly increase the crowding-out effect since banking sector deposits are only expected to grow by 1.6 lakh crore next fiscal year,” he added.
Finance Minister Abul Hassan Mahmood Ali presented the proposed budget for the 2024-2025 fiscal year amounting to Tk797,000 crore in parliament on Thursday.
Meraj Mavis also contributed to this report