Monday, June 24, 2024


Dhaka Tribune

Budget FY25

Main challenge will be inflation control, revenue collection

The country has been experiencing inflationary pressure for the last two years

Update : 06 Jun 2024, 11:19 PM

The proposed national budget for fiscal year 2024-25 (FY25) on Thursday demonstrated the continuation of the government's contractionary and cautious monetary policy, which has been the case since the Covid-19 pandemic.

The budget prioritizes reducing inflation, increasing tax revenue, and emphasizing the progressive removal of tax exemptions, although it was unclear how all of this would be implemented.

Just days before the proposed budget on Thursday, Bangladesh's general inflation surged to a seven-month peak of 9.89%.

The country has been experiencing inflationary pressure for the last two years.

However, Finance Minister Abul Hassan Mahmood Ali presented the Tk797,000 crore national budget in Parliament on June 6, revealing an inflation target of 6.5%.

The government is also optimistic that the country's gross domestic product (GDP) growth will also be 6.75%, nearly one percentage point higher than the outgoing FY23.

From this record budget, the finance minister seeks a whopping Tk545,400 crore as revenue collection, which is a major challenge for tax collectors to implement.

The overall deficit -- the difference between its expenditure and tax revenue -- will be over Tk251,600 crore, 8% higher than the revised budget for FY24.

As a result, the proposed expenditure is 11.56% higher than the revised budget of the outgoing fiscal and 14.24% of Bangladesh’s total GDP.

In his budget speech, AH Mahmood Ali stated: "We will follow fiscal consolidation as well as the reduction of the budget deficit, and will continue budget belt-tightening measures, even if on a limited scale in the budget for the upcoming fiscal year."

However, the deficit is 4.6% of GDP, the lowest in a decade.

On the other hand, the Bangladesh Bureau of Statistics (BBS) recently projected that GDP will finally grow at 5.82% for FY24, down from the projected 7.5% in the initially-proposed budget of FY24.

But after review, the Finance Ministry lowered the target to 6.5%.

Budget deficit and financing

"Our prudent and pragmatic macroeconomic policy has kept our debt management relatively risk-free, as mentioned in the reports of the International Monetary Fund," said the Finance Minister in his speech.

"Despite the increase in expenditure for loan and interest payment due to the depreciation of foreign currency over the past two years, our deficit and borrowing will remain sustainable in our overall budget."

In the proposed budget for FY25, the estimated deficit will stand at Tk256,000 crore, which is 4.6% of GDP.

The deficit was estimated to be 5.2% in the previous budget.

He further stated: "Within the total proposed budget deficit, I propose Tk160,900 crore from domestic sources and Tk95,100 crore from foreign sources for financing."

Among these, he proposes to raise more than 17% of its deficit by borrowing from domestic banks.

Within the domestic sector, a record Tk137,500 crore is being sought from banks, which is 17.25% of the total expenditure. Outside bank borrowing set at Tk23,400 crore.

Black money whitening

After a break of four years, the government has again decided to legalize black money. To whiten black money, one has to pay a flat 15% tax. No government agency will inquire about the source of the funds.

Amid the fight against money laundering and tax evasion, the government keeps this advantage for budget proposals.

Economists have criticized the government's move.

Rising tax slab

The government has kept the tax-free income limit to Tk3.5 lakh for individual taxpayers unchanged for FY25.

The current tax-exempt earnings limit for women and individuals aged 65 and above is Tk4 lakh, individuals with physical disabilities and third gender taxpayers is Tk4.75 lakh, and war-injured individuals is Tk5 lakh.

At the same time, it is proposed to increase the existing maximum tax rate from 25% to 30% for general taxpayers and firms with tax slab adjustments like 5% for next Tk1 lakh, 10% for next Tk4 lakh, 15% for next Tk5 lakh and 20% for next Tk5 lakh, and 25% for Tk20 lakh, and 30% for remainder balance.

VAT and tax

Keeping money in Bangladesh's banking system will get more expensive as the excise duty on bank balances increased in FY25.

However, these changes will not affect small depositors but will impact large depositors, as additional duty will be required for deposits exceeding Tk10 lakh.

The tax rate on lottery tickets is set to rise to 15% from the current rate of 10%.

In the new budget, the government has proposed increasing value added tax (VAT) by 5% on mobile phone calls.

Currently, 15% VAT is levied on talk time services. In addition to this, the cost of talking on mobile phones will increase if the supplementary duty of 5% comes into effect.

Earlier, for every Tk100 recharge in mobile phones, people get Tk75 as talk time and the government gets about Tk25 as value-added tax (VAT), supplementary duty, and surcharge. Now, the government will get Tk28. 

The government has proposed a 7.5% VAT on air conditioners, marking a significant increase from the current 0%.

This move comes as air conditioner sales have been booming in recent years, with an estimated 530,000 units sold in 2023, driven by persistent heat waves.

The price of materials used for the production of LED lights of bulbs and energy-saving lights is set to go up in the next financial year.

In the last budget (FY 2023-24), zero percent import duty was applicable on various materials of companies manufacturing LED lights and energy-saving lights. However, this time in the budget session, it has been recommended to set it at 10%.

The VAT on refrigerators and freezers is set to rise from 5% to 7.5%. This change is expected to make these essential household appliances more expensive for consumers, especially during the hot summer months.

The refrigerator market in Bangladesh, valued at around Tk15,000 crore annually, will also be impacted by the VAT hike. As these freezing appliances are vital for everyday life, the price increase could strain household budgets.

Moreover, the prices of electricity meters, including prepaid ones, may increase as the national budget for 2024-25 fiscal year has proposed increasing the duty on their import.

The import duty has been increased from 15% to 25%, as for their parts, the duty has been increased from 10% to 15%.

Supplementary duty on internet usage on mobile phones has been increased in the proposed national budget for the 2024-25 fiscal year.

This increases the cost of using the internet for customers. The additional tax will be effective from Thursday afternoon.

Earlier, customers had to pay 15% VAT and 15% supplementary duty on mobile internet. 

Now it has increased by another 5%. Along with this, consumers will also have to pay a 1% surcharge.

Soft drinks are set to become costlier as the government is imposing 5% more supplementary duty on carbonated beverages.The total supplement duty on carbonated beverages will be 30% from the existing 25%.

This move aims to increase revenue collection and tax compliance in the financial year 2024-25.

Moreover, all sorts of ice creams are set to become costlier as the government is imposing 5% more supplementary duty on ice cream.The total supplement duty on ice cream will be 10% instead of existing 5%.

Entertainment and family excursions outside will become costlier as the government is imposing 7.5% more value added tax (VAT) on amusement and theme parks.The total VAT on amusement and theme parks will be 15% from the existing 7.5%.

People may have to spend more for purchasing mobile phone connections or subscriber identity module (SIM) and eSIM from the next fiscal year as the government plans to increase supplementary duty on SIMs to 20% along with raising the value-added tax (VAT) to Tk300 for every eSIM.

The pressure on rising VAT and tax will ultimately put pressure on the common people.

Social safety net

The allocation for social safety net programs in the new budget is Tk9,754 crore more than the budget for 2023-24 fiscal year. Allocation in this sector was Tk126,272 crore in the last FY.

The government proposed Tk136,026 crore budgetary allocation for social safety net programs in FY25.

Out of 115 social safety net programs, 34 are cash-based, and 19 of these programs are currently disbursing funds directly to beneficiaries' bank accounts or mobile banking accounts via the G2P system.

Number of beneficiaries of the allowance for senior citizens will increase to 60.01 lakh and an allowance of Tk4,351 crore will be made in the budget.

A decision has been made to increase the number of widows and abandoned women receiving allowances from 25.75 lakh to 27.75 lakh.

The allowance of Tk1,844 crore will be allocated for the widows and abandoned women in the budget.

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