Congratulating Finance Minister A H M Mustafa Kamal, the Metropolitan Chamber of Commerce and Industry, Dhaka (MCCI) has said the budget for the upcoming fiscal year (FY), 2021-22, is 'courageous and forward looking', as it sets goals for bringing back lives and livelihoods to a reasonably stable situation without worrying too much about any deficit and lack of growth.
The MCCI thinks that this year's budget cannot be treated like any regular budget.
However, the major challenges remain, the trade-body thinks, in proper implementation and ensuring the quality of public spending, if the nation is to obtain full benefits of the proposed budgetary allocations as well as fiscal and other incentives. The MCCI made the observations in a statement, sent by its President Barrister Nihad Kabir on Friday.
The chamber appreciates the emphasis placed on issues such as: prioritising spending on health, including capacity development and vaccine management, enhancing social protection, creating employment opportunities, solving multidimensional problems of the youth and women, developing the agriculture sector, and needs for a business-friendly tax regime.
In order to really reach benefits of the budgetary allocations in the relevant sectors, more specific guidance is expected from the final document.
The MCCI applauds the finance minister for keeping in mind the national development goals and visions while preparing the budget and proposing measures to implement effectively the government's 'Comprehensive Plan' to overcome the possible negative impacts of the pandemic on the economy and the people.
Under this plan, so far, the government has introduced 23 recovery packages with a combined value of Tk 1,284.41 billion, which is approximately 4.2 per cent of the revised budget of FY 2020-21.
The FY 22 budget has set a target of 5.3 per cent inflation and 7.2 per cent growth in gross domestic product (GDP) by keeping the industrial sector afloat through continuation of the ongoing incentive programmes as well as reining in the increase in poverty rate through expansion of the social security programes.
In light of the disruptions, already caused to the economy, and probably further disruptions, the MCCI thinks it is possible that the budget deficit in the end may be more than the targeted amount.
The trade-body, since the onset of the pandemic, has suggested that the government should use the headroom accrued through prudent fiscal management in the past years to break out of its self-imposed budgetary deficit limit of around 5.0 per cent in order to finance expenditure in public projects, incentive packages, Covid-19 management and related health sector expenditures in order to protect the lives and livelihoods of the citizens.
The MCCI is pleased to note that the budget has not been constrained by the 5.0 per cent limit on deficit, instead has increased it as required in the current circumstances.
At the same time, the trade-body strongly urges the government to use all available channels to pursue all the different lower-cost sources of funding being made available internationally - in order to reduce the pressure on domestic resource mobilisation as well as keep the budget deficit duly funded.
The MCCI believes that the first priority of the government would be to ensure the health and economic security of the citizens as far as possible.
The government should not hesitate to increase the deficit, if it is required for essential expenditure, infusing funds into the economy and raising aggregate domestic demand, it opines.
It must be appreciated that the previous several years of prudential macro-economic management, including keeping the budget deficit at or close to 5.0 per cent, has created the headroom, which may now be used to expand the deficit in this emergent situation, if needed.
The MCCI thanks the government for giving priority in the upcoming budget, to the five essential sectors for protection of live and livelihoods, which are the health sector, continuation of implementation of the stimulus packages to address the financial and economic impact of the pandemic, the agriculture sector in order to ensure food security, overall development of human resources including education and skills enhancement, and rural development and job creation.
The chamber appreciates the allocation of Tk one billion in the FY 22 budget for research on various issues of healthcare and medical education.
It believes that the upcoming fiscal year may be one of the most challenging years from the perspective of fiscal management due to the present economic slowdown caused by Covid-19, not just in Bangladesh, but globally.
Revenue mobilisation would be a daunting task, given the proposed tax concessions and administrative forbearances that would have to be allowed in practice to individuals and institutions in this very difficult time, it says.
Because of the sluggish tax collection by the NBR (only 65.64 per cent of the yearly revised target up to April) in the present fiscal, the proposed budget sets an equivalent target of Tk 3,300 billion for the upcoming fiscal year.
Besides, the budget has not indicated any specific reform and restructuring of the tax policy and tax administration to enhance its capacity and deliver the right kind of public services, which in turn would increase revenue collection without over-burdening already compliant taxpayers, the trade-body opines.
The MCCI, as always, advocates for meaningful structural changes in tax administration, which would allow for an effective tax collection mechanism without burdening the good taxpayers, while also bringing into the net many others who earn high amounts of taxable revenue but do not pay the requisite tax.
The chamber thinks that underdeveloped communication and education infrastructure, weak energy transmission and distribution infrastructure, and bureaucratic bottlenecks are still the major impediments to the growth of the economy.
Also, shortfall in the NBR revenue collection and weak ADP implementation are worrying.
The MCCI appreciates the plan for reduction of corporate tax rates by 2.50 per cent. The chamber thinks it is a step in the right direction to meet the long-time demand of the business community to bring the corporate tax rates in line with regional competitor countries.
In order to obtain the full benefits of this reduction, however, the existing maximum allowable limits of legitimate business expenditures, such as promotional and travelling expenses, arbitrary disallowance of other expenses, and high and irrational rates of tax deduction at sources (TDS) would have to be rationalised and/or removed, as the case may be.
Discretion in the levy and collection of taxes, which often results in an effective higher rate, in these difficult times, would discourage investment in the private sector, where such investment has already suffered a significant reduction due to the pandemic, and therefore must be curbed, it opines.
The MCCI is also disappointed that no step has been taken in the budget for reduction or elimination of advance income tax.
In this connection, it is noted that the budget proposes an increase in the corporate tax rates for mobile financial service (MFS) providers. MFS, as an industry, is still in its nascent stage in Bangladesh.
But even now it has significantly improved financial inclusion, and more than 110 million MFS accounts are in operation now. It has had a huge role in providing financial services to lower income and previously unbanked people in the country.
Increasing their tax rate steeply at the time of pandemic, and effectively disallowing a large portion of their promotional expenses would cause a slowdown of the growth of MFS services and send a wrong signal to investors and users alike amidst all the positive signals of the budget.
The MCCI has always advocated that the minimum turnover tax is totally contradictory to the principles of income tax. Income tax should be imposed on businesses only on their taxable profits, not on revenue or other funds. Also, the minimum turnover tax is not logical during the pandemic period. The chamber opines that the minimum turnover tax be eliminated.
The MCCI welcomes the proposed income tax exemption of up to 10 years for newly established hospitals, agriculture and fruit processing industries, milk producers, producers of milk products, new areas in the IT sector, domestic manufacture of electronic home appliances, light engineering and skill development, vocational training institutes, and 'Made in Bangladesh' brands, etc.
"This will help to develop import substitute industrialisation, which will ultimately increase employment generation as well as save foreign currency," it says.
Welcoming 25 per cent tax on one person company (OPC), the MCCI also calls for rationalising the minimum requirement of paid-up capital of Tk 2.5 million for OPCs, in order to attract small and new start-up entrepreneurs.
The minimum paid-up capital requirement is not even applicable to unlisted private and public limited companies, and hence should be removed from the law.
The chamber appreciates the plan to reduce advance VAT rates to make it more business-friendly in the budget for FY 22.
Budget to incentivising local production is appreciated. At the same time, the MCCI is disappointed that much needed structural reforms to VAT law (and incorporated in the original version of VAT Act 2012) have not been proposed in this budget.
In particular, the MCCI strongly advocates deletion of Input-Output Coefficient, reduction of the limitations placed on claiming input rebate, easing of the requirements for central registration, and reduction of the scope of deduction of VAT at source.
The trade-body is pleased to note that the FY 22 budget is extending tax exemption facilities until 2024 to some new IT sector services (cloud service, system integration, e-learning platforms, e-book publications, mobile application development services, and IT freelancing), which will take the dream of building a Digital Bangladesh one step further.
The chamber notes that the maximum limit of investments by individual taxpayers to get tax rebate is reduced to Tk 10 million in the upcoming FY budget, compared to Tk 15 million now.
This would have a negative effect on both savings rates, which need to be increased in order to increase private sector investment to the desired levels, as well as investments in the capital market, it mentions.
The MCCI appreciates non-renewal of the opportunity of whitening black money by paying only 10 per cent tax.
It expects that the government would reconsider its strategies for employment creation in a more specific way, so that those who have lost their jobs during the pandemic can return to the job market soon.
The recovery trajectory of the global economy is still uncertain due to the ongoing pandemic. Therefore, the MCCI feels that there should be an interim evaluation of the budget after three months, and every three months for the next year, so that, if required, it can be restructured and revised accordingly.
As there are still so many 'unknown unknowns' to be dealt with in regard to the pandemic and its ongoing effect on society and economy, the need of the hour is flexibility to deal with situations and requirements swiftly as they arise, it adds.