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The Business Post roundtable on Economic Challenge and the Upcoming budget for FY23


23 May 2022 00:00:00 | Update: 23 May 2022 00:23:36
The Business Post roundtable on Economic Challenge and the Upcoming budget for FY23
Panellists at the roundtable organised by The Business Post at its office in Dhaka on Saturday– Photos: Shamsul Haque Ripon

The Business Post on Saturday organized a roundtable, on the national budget for the upcoming 2022-23 financial year, that was attended by the country’s leading economists and business leaders at the newspaper’s office in Dhaka. The discussion, titled “Economic Challenge and the Upcoming budget for FY23,” was presided over by the daily’s Editor Mohammad Golam Sarwar and moderated by Executive Editor Nazmul Ahsan.

Below are the excerpts of their opinions, recommendations and demands voiced during the discussion.

‘Keeping inflation in check big task’

Attending the roundtable as the chief guest, former finance adviser to the last caretaker government AB Mirza Azizul Islam said that keeping the inflation under control is a big challenge. The country’s current inflation rate is a result of the ongoing global situation – especially the Russia-Ukraine war.

“The war triggered a fuel price hike, which in turn caused the rise in essential commodity prices,” he said.

He continued, “When inflation rises due to the global economic situation, we cannot control it using internal policy. Under such circumstances, the government has to provide cash support to the victims through social safety net programmes.

“But there are problems as those who need the aid are not getting it, and misappropriation is prevalent during the disbursement process. The allocation is also not enough.”

To address the issue, and lessen the people’s burden caused by the rising inflation, Azizul recommended an increase in allocation for this particular purpose in the next budget and proper coverage of the social safety net.

‘Tax-to-GDP ratio must go up’

Questioning the numbers in budgets, the economist said, “Every year, Bangladesh reduces the size of its initial budget through revisions, and it is even less in reality. We should not have such a tendency.

“Instead of reducing the budget size, we should improve our spending capacity. Bangladesh has the lowest government expenditure among all South Asian nations.”

He said, “If the revenue does not increase, expenditure will decrease. The tax-to-GDP ratio is 22 per cent in India and Nepal, and 15 per cent in Pakistan. In Bangladesh, the ratio is only 10 per cent. We have to increase this figure.

“Those who pay taxes are pressured, but half of the people who have TINs do not submit tax returns. We need to look into the matter as to why these people are not paying taxes.”

Mentioning that the unemployment rate is now higher among the educated people, Azizul said the next budget should take adequate measures to address the issue. The government should also take steps to resolve problems with funding and issues in the capital market.

He then said, “Bangladesh has been lagging in the ease of doing business index. However, the BIDA’s (Bangladesh Investment Development Authority) ‘One Stop Service’ has improved.”

“Though we have made some progress with individual investors, problems remain regarding the institutional investors. The upcoming budget should have guidelines centring this issue,” he added.

‘Increase monitoring in kerb market’

Centre for Policy Dialogue’s Research Director Khondaker Golam Moazzem said, “Bangladesh was showing good progress after emerging from the Covid-19 crisis, and business communities were becoming interested in investing.

“But since then, the supply chain has been disrupted, while spending increased. Due to the Russia-Ukraine war, we are still facing a fuel price hike and supply shortages.”

He continued, “We are facing a challenge with the balance of payment. Bangladesh’s exports have increased, but import expenditure has gone up even faster. We can cover the gap with remittance and foreign loans, but there are challenges here too.

“The foreign exchange market will remain volatile for the next few days. The central bank should take logical steps to keep the US dollar rate stable. The dollar price in the kerb market is now higher. If necessary steps are not taken, remittance through the Hundi system will increase.”

The authorities concerned should increase monitoring in the kerb market, he added.

Moazzem continued, “The next budget should have effective steps to tackle the supply shortage of commodities. The crises triggered by inflation are gradually rising. Currently, food inflation in the country has decreased, but non-food inflation has increased.

“How can this happen? The trend to keep inflation around is a wrong move.”

He then said, “Inflation means that in reality, the prices will go up. But now it is a question of whether there are goods available in the markets. The government should take a firmer stance to ensure a smooth supply of goods in the market. Duties and taxes can be lowered if necessary.

“The decision to keep interest rates at a fixed level is damaging the loan sector. It is not profitable for banks to disburse loans to SMEs at a 9 per cent interest rate. This has been discouraging the banks from disbursing loans to SMEs.”

The next budget should include steps centring the interest rates to help support the SME sector, he stressed.

Dr Moazzem added, “The government should expand the social safety net in the next budget. Especially, the food supply for industry workers should be increased, and aid should be provided to the poor and people with very limited income.”

Discussing ways to boost employment opportunities, he said, “The government should provide more facilities to the private sector to help create more jobs. Besides, government projects — where there is an opportunity to boost employment — should be prioritised.

“The government should introduce region-based products. The lawmakers will put more pressure on smaller projects ahead of the election, but the main focus should be on projects that can generate employment opportunities.”

‘Govt should go for defensive budget’

“The next budget’s size will be bigger, which is usual. But what we need to think about is its proper implementation,” said The Business Post Editor Mohammad Golam Sarwar, while presiding over the roundtable.

“We’re lagging in the ease of doing business index. As a result, we’re not getting the desired foreign or domestic investment. To attract more investment, we will have to remove the bottlenecks in doing business,” he said.

“Also, completion of a project on time is very important to reap the most benefits from the investment,” Sarwar added.

Taking the global economic crisis caused by the Russia-Ukraine war, the pandemic, and Bangladesh’s achievements in economic and social issues into account, the government should announce a defensive budget for the next fiscal instead of an aggressive and political one, he stressed.

Sarwar also urged the government to ensure the supply of essentials and other goods to keep inflation under control.

‘Implementation target must be realistic’

Addressing the discussion, former NBR chairman Muhamad Abdul Majid said, “The three key challenges for the next budget will be tackling the impacts of the Covid-19 pandemic, Russia-Ukraine war and LDC graduation.

“So the budget should be made keeping these in mind.”

He said, “We need to target a three-year rolling system. Some 45 per cent of the ADP was implemented in nine months, and the rest in three months. The next budget should have suggestions and the opportunity to introduce changes in this regard.

“The budget implementation target must be realistic, and the quality of implementation must be improved further. Even if an implementing agency fails to finish a project in time, steps should be taken to keep the allocation available the next year, so that they can finish work. Just like to be prepared a rolling system budget.”

“Nowadays, there is a tendency to haphazardly use up the project allocations at the end of the fiscal. In some cases, cheques for total allocation are also issued even if the projects are not finished by June 30. The next budget should have measures to put a stop to both,” Majid added.

The current tax-to-GDP ratio does not match the budget, he continued. “Taxes are much lower than GDP. It must be brought to a logical stage. The NBR needs reforms to increase capacity and revenue collection. Moreover, the budget formulation and implementation processes should also be reformed. The budget will have to be realistic.”

If NBR cannot keep the economy healthy and fail to take appropriate action, then the target itself will be a blow to the economy, he said. Given the target, NBR takes whatever it gets since there is less opportunity to go to the field and collect it.

“For this reason, efforts are being made to increase revenue through source tax. But this is not a good method. The NBR needs to be given a realistic target so that it helps to increase revenue,” he added.

Majid also said, “We do not have to do what we do to meet the deficit. The three-year term rolling system needs to be introduced in the budget until the situation becomes normal. This will help avoid taking hard loans to tackle the deficit. We are facing this situation only because of macroeconomic mismanagement.”

‘Transparency, accountability needed’

Md Shafiul Islam Mohiuddin, former president of the Federation of Bangladesh Chambers of Commerce and Industries (FBCCI), said, “The Russia-Ukraine war has broken out at a time when we, the world as a whole, are recovering from the impacts of the Covid-19 pandemic.

“We don’t know where reality is headed. We are part of the integrated world, and this whole situation is impacting our economy.”

He pointed out that the product prices have gone up in the country due to the supply chain disruption and businesses face many challenges while importing products due to the unstable dollar market. “We do not know what is actually going on behind the scenes. Transparency and accountability must be ensured at all levels.

“The most concerning matter now is the rising gas and electricity prices. Our FDI [foreign direct investment] will decrease if these prices go up as per recent proposals. Already, we are attracting necessary FDI. The business environment should be comfortable here. Employment will increase if businesses gain speed.”

To attract more FDI, he recommended improving the ease of doing business ranking as well and suggested making government policies consistent since inconsistency will only dissuade investors.

Mohiuddin continued, “Bangladesh is trying to achieve the SDGs (Sustainable Development Goals) amid the estimated period while facing various challenges.

“Our tax collection is one of those. It is very poor compared to neighbouring countries. There are two reasons behind this poor performance. One, we are not interested to pay taxes properly, and two, NBR is not capable enough. There is no doubt that we are far behind in using proper technology in this regard. We don’t get a proper solution because of the blame game.”

He stressed, “We have to widen our tax net. Hence, we should not harass the business community with taxes. We have to think about how to make all processes easy. Tax evasion culture will reduce if exemplary punishment is given out.”

“A huge number of marginal businessmen who have no trade licences and bank accounts also suffered in the pandemic. But the small and cottage businesses did not benefit properly even after the government provided Tk 1,20,000 crore in stimulus packages. I think we should work on this to make sure this is done properly. The tariff commission should also be activated to fix the tariffs the right way,” he added.

“We saved a huge amount of money by completing three bridges on the Dhaka-Chattogram route on time. But sadly, the work on Tongi- Gazipur road did not finish on time. It is unacceptable that we lost numerous working hours. We have to implement projects on time. Our policymakers should consider all constructive suggestions coming from any side to tackle these challenges,” Mohiuddin said.

‘To increase capital market cash flow…’

Richard D’ Rozario, president of the Dhaka Stock Exchange Brokers Association of Bangladesh, said, “There are huge challenges in our country’s economy. We should now be cautious and make a defensive budget, which will encourage entrepreneurs.”

He said that if the corporate tax rate is reduced, then transparency would be ensured in the accounts of such companies side by side, and revenue collection would increase further.

He urged offering the money whitening facility for stock business without any question to increase cash flow in the capital market.

Richard said the capital market would be strengthened next year if the black money whitening scheme was available in FY2022-23.

“The initiative will increase liquidity in the capital market. The dynamics of the stock market will also rise. More industrial and economic development will take place,” he added.

He also said preventing money laundering and investing in the country would help the government’s revenue grow.

The reduction of corporate tax to 15 per cent for listed companies will encourage many more companies to go public, and the government’s revenue income will also be enhanced.

“We should work towards establishing the concept that the capital market is the main source of funds for industrialization,” he said.

He urged the government to reconsider four proposals in the final budget, including a reduction of AIT to 0.015 per cent from the existing 0.05 per cent.

He added that the stockbrokers are incurring huge losses and many brokers have already shut down their branches and some are about to do the same to save operational expenses due to the ongoing crisis.

The graduate and SME problems

Addressing the roundtable, Bdjobs.com CEO AKM Fahim Mashroor said, “Nearly 50–60 per cent of the unemployed are fresh graduates. In Dhaka, we don’t find staff for e-commerce delivery service where a young man can earn Tk 25-30,000, for which he only needs a bicycle. The unemployment rate is more acute in rural areas, apart from the seasonal harvesting times.

“But the social perspective is not still recognised there. We have created such a society where unemployment after graduation has been taken for granted. The graduate-unemployment rate is higher than ever as the country is producing more graduates than it needs.”

“During the pandemic, students were promoted to the next stage of education but they are entering the job market without the necessary skills. Companies won’t be able to hire them.

“We can create a 30 per cent quota in the BCS for vocational and technical students as most of the graduates are entering the job market without acquiring the required skills,” he added.

He then recommended, “If any company hires a fresh graduate, the government can give internship allowance for the employee or give at least 50–60 per cent of the salary for one year. Questions may arise regarding misuse of the benefit. To avoid that, employee salaries can be paid through digital platforms.”

Fahim continued, “Besides, special tax benefits can be given to the company for three years if they employ people with disabilities. Many countries have already introduced this system.”

“For skill development, the industry should engage more with government schemes. A budgetary mechanism is needed for this matter,” he said.

He also said, “SMEs are the country’s largest employment generating sector. But there is almost no connection between the banks and the SMEs. The government has given various benefits to the industry and the central bank has introduced a 9 per cent interest rate on loans. But the banks are only disbursing loans to big companies.

“SMEs cannot afford a loan at this interest rate, as it does not go with their operating costs. They are also not getting the stimulus loans. This is a need for a structural change to reduce the interest gap. According to Bangladesh Bank’s loan policy, SMEs must have trade licences to get loans but that is impossible for at least 90 per cent of SMEs as those are mostly small, micro and cottage industries. We have to take progressive steps to address this issue.”

Fahim added, “Simplification of documentation can be another initiative. Arrangements have to be in place so that SMEs can get loans within two-three days based on their MFS transaction instead of securities and mortgages. The loan volume may not be high. It can be up to Tk 1 lakh. We can use fintech to solve this SME problem.”

‘Reduce corporate tax’

Joining the discussion, Md Sayadur Rahman, president of the Bangladesh Merchant Bankers Association (BMBA), said that the present corporate tax rate for listed companies is now 22.50 per cent, but despite this, a reduced corporate tax rate will encourage good companies to get listed with the stock exchanges.

Consequently, if the number of listed companies can be increased, the government’s total revenue collection will also go up, he added.

He also said that there is still a lack of good companies with strong fundamentals in the capital market. “So, I propose reducing this tax rate to 15 per cent.”

Sayadur also urged the government to cancel the double taxation on dividends. “This discourages capital market investors. Withdrawal of double taxation on dividends will reduce market volatility and attract new investors.”

He advocated for lowering the Advance Income Tax (AIT) on securities trading from 0.05 per cent to 0.015 per cent and repealing Section 53 BBB of Rule 82(c) (2)(b) of the Income-tax Ordinance.

“We want a full waiver of source tax on the commission to be realized from the security transactions in the SME platform. Investors will feel encouraged to take part if there is no tax on the security transactions.

“Besides, the companies that will raise capital through the SME platform will also benefit,” he opined.

Regarding the current stock market situation, he said that many rumours are being spread through social media. “We need to be more alert.”

‘Business-friendly tax policies a must’

Bangladesh Knitwear Manufacturers and Exporters Association’s (BKMEA) Executive President Mohammad Hatem said, “A complicated taxation procedure and harassment are big barriers for the business community, and they increase the cost of doing business.

“Raw material imports for the export-oriented RMG sector are out of VAT’s purview but exporters have to submit returns. Also, after online submission, they still have to submit a hard copy every month.”

He then asked, “We pay VAT while importing capital machinery, which we use to manufacture export or local goods after creating employment. So, why should we pay VAT since this process pays the government indirectly when exporters pay tax?”

On the other hand, he added, there are complexities in the HS Codes in importing goods that in some ways discourage investment. “To attract investment and create jobs, the government should make the tax policies more business-friendly.”

Hatem claimed that laws are made in such ways that can be used to harass businessmen easily. “For example, a company exports $12 million worth of goods annually and the NBR deducts $60,000 as source tax. Finally, NBR deducts around Tk 51 lakh. But this company has been incurring losses for the past two years. How will it get that Tk 51 lakh back?”

“Meanwhile, this company’s bank deducted 2.5 per cent as security money against back-to-back LCs (letter of credit) and his deposit reached Tk 10 crore. The bank gave him Tk 60 lakh as interest against that but deducted Tk 6 lakh as source tax from that interest. Now, NBR wants 35 per cent as income tax from that interest. Since this company is already losing money for the last two years, how will it pay 25 per cent more?” he questioned.

Hatem said that though his investment is above Tk 20 crore, he has to pay 30 per cent or around Tk 15.30 lakh as a surcharge. That means he has to pay around Tk 30.15 lakh to NBR from his Tk 60 lakh bank interest. Before, NBR deducted Tk 51 lakh as source tax.

“While this company’s owner is bleeding money, he failed to make any profit but had to pay Tk 81.15 lakh in total to NBR. On top of this, NBR imposed various taxes on him when it came to the final settlement. This is pure torture,” he lamented.

“Some 85 per cent of garment factories incurred losses in the last two years but they still had to pay source tax. There is no way to get back the money paid as source tax in case a company incurs losses,” he added.

Hatem went on, “A lot of RMG factories operate on a subcontract basis. If there is no other way, a factory goes for the subcontract work order. But NBR has imposed a 35 per cent income tax against subcontract earnings. How is this logical?”

“The RMG sector has been enjoying zero VAT facility for a long time, but we still have to submit VAT returns every month. And we have to appoint someone to prepare the statement to show that we enjoy zero VAT facility,” he said.

“Besides, when we submit VAT returns online sometimes, it does not work properly due to mismanagement,” he added.

‘Budget should focus on timely strategies’

The upcoming budget, according to Dhaka Chamber of Commerce and Industry (DCCI) Director Khairul Majid Mahmud, should focus on timely strategies to fine-tune the business environment for the inclusive private sector and economic growth, taking into account the current economic transition and global challenges towards the much-needed economic transformation.

Speaking at the roundtable, he said the pandemic has resulted in 32.4 million new poor and five million job losses by 2021. The safety budget has risen to over Tk 1 trillion at a growing pace in the last two budgets but did not end this vulnerability.

Bangladesh, like Sri Lanka, suffers from a dual deficit, he said. The country’s trade deficit reached $25 billion in the first eight months of FY22, representing a 9.25 per cent increase over the previous fiscal year.

Khairul also said that the declining value of the taka against the US dollar to Tk 87.50 and the real effective exchange rate to Tk 114 have become huge concerns. FDI has slightly recovered over the last fiscal year, by 15 per cent to $2.89 billion, though the growth trend is inadequate.

“Our corporate tax rate is not competitive as it is higher than the EU, US, and Asian averages,” he said. “It is also 10 per cent higher than that of Vietnam, Cambodia, and Thailand, and 6 per cent higher than many South Asian peers.”

The national budget caters to the interests of almost all stakeholders through shared welfare programs, but in reality, a country like Bangladesh — with limited resources where the tax to GDP ratio is around 6 per cent — cannot meet the entire demand of the economy, he added and also recommended that policymakers should try to balance the limited resources and prioritise sectors.

“The high revenue collection target of the NBR often induces corruption and injustice. Harassment is often the outcome of this. The irrational revenue target needs to go. A target must be set based on the revised taxation structure. For that, the collection target for direct taxes may even be reduced,” Khairul said.

He stated that remittance incentives could be at 3 per cent and their effectiveness must be revisited. “In the backdrop of declining remittances, finding new sources has also become a priority.”

“LDC graduation will also add to the ongoing challenges of the country. As the preparedness of post-LDC competitiveness, export market, product diversification, local industrial capacity and tariff rationalization can be initiated,” said the business leader.

The road to recovery should continue with the aim to improve the micro, cottage and small businesses as they were adversely affected by the pandemic. Since CMSMEs share 80 per cent of local employment, quick disbursement of the stimulus fund with a larger moratorium facility needs to be ensured, Khairul said.

Predictable, affordable and industry-friendly energy security plans and tariffs should also be indicated in the next budget. Local energy sourcing capacity should be enhanced instead of extreme import dependence, he added.

‘Focus more on education, research’

“Bangladesh must focus more on education, research and social safety net in an inclusive way in the upcoming budget,” Research and Policy Integration for Development (RAPID) Executive Director M Abu Eusuf said speaking at the event.

“This will help the country combat the global supply chain disruption, and the economic strain triggered by the Covid-19 pandemic and the Russia-Ukraine war,” he added.

He said the government should think beyond the annual average economic growth in the competitive world, and instead consider inclusive measures to sustain the development and tackle Bangladesh’s LDC graduation.

Eusuf explained, “We have observed that the country is too much focused on economic growth, which is necessary but growth is not everything. We suggest inclusive development measures. It is harder to survive in the competitive world as an average country.

“At the same time, Bangladesh is the second country where schools were closed for 18 months due to the pandemic. Because of that, students suffered as inequalities increased among the children, mostly between the marginal students — who dropped out and shifted to child labour or were married off — and urban students,” he added.

He stressed, “Bangladesh has to take necessary steps in the upcoming budget to get those students back to education, as there was no appropriate budgetary allocation in this fiscal to reduce such inequalities among the 40 million students who suffered learning losses due to Covid.”

Eusuf urged the government to pay attention in the upcoming fiscal year to create more employment and address the gap between the education and employment sector requirements.

He said, “Bangladesh makes a large combined budget in technology and education. However, we request a separate budget for the education sector every year, which should be 20 per cent of the total budget or 4-6 per cent of the GDP.

“The budget for education has been hovering around below 2 per cent.”

As per a Bangladesh Bureau of Statistics (BBS) report, Bangladesh spends only Tk 700 per capita in the education sector, which is a very small amount. At the same time, the allocation in research is quite low compared to the requirement, Eusuf mentioned.

He then pointed out, “The number one challenge in our country is inequality, which is gradually increasing with the rising GDP, per capita income and poverty reduction.”

The top 5 per cent rich of the country own some 30 per cent of total resources while the bottom 5 per cent own only 2-3 per cent, he said. “We cannot develop inclusively if we do not address these inequalities and adjust them the proper way.”

He also asked, “Why is government service holders’ pension falls under the social safety net programme? And why the interest of savings is considered under social safety net measures?”

“Necessary allocation is required to reduce the number of new poor who suffered during the pandemic and other economic crises,” he said. “Only 2 per cent of GDP is used in social safety net programmes while the government considered 3 per cent.”

Eusuf stressed that the government must take big steps to bring major reform in every institution to increase internal resources and reduce external dependency. “Otherwise, we will lose many internal resources.”

‘Jute sector needs technology upgradation’

Md Rashedul Karim Munna, managing director of Creation Private, said, “We will not be able to reap the highest benefits of jute only by exporting sacks. We are mostly exporting raw jute and yarn but the exports of value added products are very small.

“However, India, Pakistan and other countries are making value-added products by importing jute from Bangladesh, and earning more money than us. This is happening because of our lack of enough research.

“We need technology, but our policy does not have enough support for it. Compliance would be the next issue for the export sector, and its needs huge investments. I urge the government to provide adequate policy support in the national budget on this matter.”

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