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As Bangladesh is transforming into a developed, prosperous and smart nation by 2041, it needs more policy support in line with the promotion of industrialisation, employment generation, trade facilitation, protection of local industries, and a boost to foreign direct investments (FDIs).
However, fiscal changes proposed by the government on Thursday for FY25 have introduced a mere tax relief for industries and individuals amid the ongoing economic strain, macroeconomic instability, elevated inflation and foreign exchange crunch.
The taxation part is proposed in such a way that it places a strategic move towards preparing the nation to be graduated from the least developed country (LDC) status and tackling the ongoing repeated pressure of the International Monetary Fund (IMF) under the $4.7 billion loan conditions.
So, the proposed tax policies articulately indicate that the National Board of Revenue (NBR) is desperate to collect taxes or boost revenue by withdrawing or curtailing the tax benefits given earlier for the industries to facilitate their trades and aid to expand them.
However, most industries are yet to flourish fully or expand their economic activities at expected level due to Bangladesh’s previous political unrest, mountain corruption in most sectors, and different uncertainties as well as global economic headwinds in the last five years, including Covid-19, Russia-Ukraine War and middle-east crisis.
Amidst the ongoing challenges, the proposed contractionary fiscal policy may hurt industries further, which in turn led to a cost or price burden for individuals. Even, amid ongoing elevated inflation, the unchanged tax-free income limit is nothing but a shrinking room for taxpayers.
The tax officials’ moves for boosting tax collection are placed in the budget as the government sets a mountainous target of Tk 4,80,000 crore in FY25.
But the NBR could not collect revenue collection targets posted in previous years, and even in the incumbent FY. Even the amount which is close to the proposed target could not be collected.
So, there is no scope to not to be desperate in terms of withdrawing or curtailing tax exemptions. However, if the NBR could raise tax net, curb evasion, and rationalise exemption in every fiscal year slightly, the NBR do not have to be so desperate today as these will hurt industries mostly in this challenging time.
A budget of duty benefit cuts
The government slashed duty benefits in alignment with IMF recommendations, impacting power plants, industrial raw materials, economic zones, hi-tech parks, and referral hospitals.
The increased import duties on power plant equipment and industrial raw materials came in the budget which created fear among stakeholders as these changes might lead to higher production costs and reduced competitiveness.
Import duties on power plant equipment rose from zero to 5 per cent.
Similarly, vehicle imports within economic zones and hi-tech parks lost their exemptions. Industries like healthcare could also be affected, with higher costs for importing advanced medical equipment, which may hinder the expansion of high-tech medical services.
Besides, the mandatory cashless operations for the IT sector are a crucial component of the government's vision for a digital economy. This policy not only encourages transparency and reduces cash-based transactions but also aligns with global trends towards digital payments.
The inclusion of new tech services under the tax exemption shows the government's recognition of emerging technologies including artificial intelligence and blockchain solutions in this 4IR era.
However, the transition to cashless operations could be challenging for some businesses, requiring significant investments in digital infrastructure as our country’s economy mostly relies on the informal sector.
Same thing is introduced in corporate tax provisions.
Corporate tax for listed and non-listed companies will be raised by 2.5 per cent, if all types of income and receipts and all types of expenses and investments above Tk 5 lakh in each single transaction and above Tk 36 lakh in total annually are transacted through bank transfer.
New measures include a 3 per cent turnover tax on sweetened and carbonated beverages.
However, a 15 per cent tax is proposed on whitening money with no questions asked in lands, flats and securities, which can help these sectors, but the facility does not align with the spirit of equality in the Constitution.
The proposed exemption of offshore banking deposits from excise duty is a strategic move to attract foreign currency in this crucial time. This policy aims to alleviate the forex crisis by encouraging repatriation of funds held abroad, thus enhancing the country's forex liquidity.
While this measure targets FDIs, the increased excise duties on regular deposits might burden domestic depositors, especially those in higher income brackets.
By ending duty-free imports of new phones and 24-carat gold under the baggage rule, the government wants to bolster local manufacturing and clamp down on smuggling. This policy will likely increase demand for locally produced mobile phones, stimulating the domestic industry.
However, concessional duty benefit, import discourage though duty increase and a reduced duty rate deadline extension also proposed in the budget to promote domestic manufacturing industries including refrigerator, washing machine, motorcycle and car, computer, lift, mobile phone and air conditioner.
Besides, this contractionary fiscal policy also reduces source tax on essential commodities – including rice, wheat, onion, garlic, edible oil, and sugar – supply to keep the price at lower in the inflationary pressure, and introduced some measures including mandatory submission of proof of returns for clinics, hospitals and ceremony in convention centres to raise tax net.
Policy Research Institute (PRI) Bangladesh Executive Director Ahsan H Mansur told The Business Post, “Meeting the revenue collection target will be challenging, even though these efforts are introduced.”
Meanwhile, Metropolitan Chamber of Commerce and Industry (MCCI) President Kamran T Rahman said, “To boost tax-to-GDP ratio, the government should raise the tax net without imposing more taxes on taxpayers.
“Reducing taxes can encourage people to pay taxes regularly.”
