Budget FY23 must focus on ease of doing business

In order to accelerate Bangladesh’s economic recovery and generate more employment, the budget for FY 2022-23 should focus on reducing the cost of doing business, and pave the way for boosting local and foreign investments, Dhaka Chamber of Commerce & Industry (DCCI) President Rizwanur Rahman told the Business Post’s Ibrahim Hossain Ovi in an interview.

What should the budget for FY23 focus on?

Since the energy price hikes triggered inflation, war and pandemic recovery are the core challenges being pondered by businesses and industries, and these issues are key challenges for our economic growth as well.

The budget for FY23 should focus on strategies to boost Bangladesh’s economic growth, and further ease the process of doing business against the backdrop of the ongoing economic transition.

It must fine tune a pro-business environment, so that these challenges can be tackled, which in turn will allow the private sector to flourish. The economic recovery roadmap, along with the social safety net, must continue until our economy returns to the level of pre-Covid growth.

How can jobs lost amid the pandemic be retrieved?

As per the International Labour Organization (ILO) data, Bangladesh’s unemployment rate would remain 5 per cent in 2022, and about 3.6 million people would remain unemployed during this period, surpassing the pre-pandemic level by 0.5 million.

To generate employment, there is no alternative to investments.

The next budget should strengthen the investment environment of Bangladesh. For employment recovery, initiatives such as re-skilling and up-skilling of the unemployed workers of formal and informal sectors are a must.

The industry policy too should introduce some schemes focused on employment generation.

Businesses impacted by the Covid-19 pandemic deserve tax exemption on employee benefits and salaries, which will help retain employees. The tax exemption limit of individual taxpayers must be readjusted to aid in the survival of people belonging to low income groups.

How to attract more investment through budget FY23 policies? 

In 2021, Bangladesh received $2.89 billion foreign direct investment (FDI) with a 15% growth, but considering the growth trend and the country’s economic needs, this figure is not adequate.

Vietnam, India, and Indonesia’s FDI to GDP ratio are 6.2 per cent, 2.2 per cent, and 1.76 per cent respectively, while Bangladesh’s is only 0.61 per cent. In the given context, we must have some result-oriented and smart action plan for attracting FDI to reach the target level.

The budget for FY23 must have a clear roadmap with fiscal and non-fiscal mapping.

Along with a visible improvement in the ease of doing business index, corporate tax must be rationalised at per regional standards. Necessary reforms for quicker and easier business registration and operation are also very crucial. 

Equipping economic zones for investments, as well as the diversification of FDI sectors, must be prioritised in the budget for FY23.

Is the existing corporate tax rate enough to attract investment?

Considering the post pandemic revival of commercial activities, reducing the cost of doing business is gaining momentum globally. In line with this trend, corporate tax and other business expenses need to be lower. Our corporate tax rate is not competitive.

Bangladesh’s existing corporate tax rate is even higher than the average rate in the European Union, USA and Asia. It is also 10 per cent higher than that of Vietnam, Cambodia, and Thailand, and 6 per cent higher than many peer economies in South Asia.

To sustain businesses amid the Covid-19 pandemic crisis and increase investment in Bangladesh, reducing corporate tax rate at a progressive rate of 2.5% in each year can help us in revenue realisation and investment facilitation to some extent.

How to make corporate tax rate investment friendly in the days to come?

Automation of overall taxation, VAT system, refund, and adjustment are needed urgently to make the process more business friendly. On the other hand, a predictable tax rate and compliant tax culture is also very important for increasing tax net and foreign investments.

In addition, a clear roadmap on tax reduction, exemption, and revenue realisation aimed at bringing large investments is needed for attracting more FDI.

We also need to balance the tax rate across all industries, as the readymade (RMG) industry is extremely privileged with lower tax rate compared to other industries, to create a level playing field for business.

In the next budget, what do you think is needed for the survival of small investors recovering from the pandemic?

The next budget should prioritise the continuation of “Road to Recovery,” focusing especially on micro, cottage, and small businesses as they have been adversely affected by to Covid-19 pandemic.

Since micro, small and medium enterprises create 7 out of 10 employment globally and accounts for 80 per cent of local employment, quick disbursement of stimulus funds with larger moratorium facilities must be ensured.

The import duty, advance tax and customs clearance process, and cost of small businesses must be rationalised for strengthening local import substitution industrialisation.

As a short-term measure, the government should facilitate disbursement of collateral-free cash flow-based loans, and ensure that the SMEs have access to such facilities. The corporate tax, turnover tax, and VAT rates must be reduced for small businesses across the board, during the interim period till their full-fledged recovery.

What should be the package for the health, education sectors to tackle pandemic challenges?

To create a pandemic resistant healthcare system, the government should continue the trend of keeping a separate allocation in the budget for FY23. The next budget should also prioritise healthcare infrastructure development and introduce health insurance coverage for everyone.

Bangladesh has the lowest education budget in South Asia. The education sector should get at least 6 per cent of the GDP to support primary, secondary and tertiary education systems.

The government should consider educational hard and soft infrastructure with substantial capacity building of teachers, administrators, researchers to cope with changing education atmosphere.

The mapping of new skillsets is essential to equip our upcoming graduate workforce in different industries, to help sustain both their lives and livelihoods.