The government's ambitious revenue collection target and the plan to borrow a huge sum from the banking sector to finance the budget deficit may leave the private sector and individual taxpayers in dire straits, business leaders said yesterday.
The government in its proposed budget for the upcoming fiscal year has set a goal to generate Tk 378,000 crore in revenue, which the businesses think will deal a fresh blow to export, import and manufacturing activities that are already stagnant owing to the pandemic.
On top of that, the finance minister's plan to borrow Tk 84,980 crore from banks to plug the deficit of the budget will constrict credit flow to the private sector, they said in their reaction on the proposed budget for fiscal 2020-21 unveiled on Thursday.
The revenue collection target will be very difficult to achieve given the knock-on effect the COVID-19 has already left on trade, commerce, services and production, said Muhammad Farooq, president of the Institute of Chartered Accountants of Bangladesh (ICAB), in a statement on Thursday.
"We expect that the government will finance the budget deficit from the money market without squeezing the credit flow into the private sector."
The proposed budget is ambitious and entails a lot of challenges in its implementation, Farooq said.
The business community, however, applauded the government's allocation for healthcare, agriculture, social safety net and job creation, according to the statement.
The reduction in corporate tax rate from 35 percent to 32.5 percent comes as a relief for the local companies and the measure will also encourage industrialisation and help bring foreign direct investment, Farooq added.
The priority of the budget must be to ensure the health and economic security of the citizens as far as possible and secondly to infuse vitality in economic activities by raising aggregate domestic demand, according to the Metropolitan Chamber of Commerce and Industry (MCCI).
The chamber said the budget might be based on four main strategies: prioritising government spending on essential sectors while discouraging luxury expenditure; creating loan facilities to help enterprises get back onto their feet; expanding coverage of the social safety net; and increasing the money supply to the economy.
The measures should strike the right balance among multiple vital issues from raising aggregate domestic demand to health, education, growth, social safety and many other requirements.
The chamber praised the finance minister for giving priority to agriculture, food security and the health sector and expanding the coverage of the social safety net programmes.
The MCCI thinks there should have been more focused indications in the budget for recovering jobs that have been lost due to the pandemic and creating new jobs, according to a statement.
The chamber also called for measures to create means of livelihood opportunities for expatriate Bangladeshis who have been forced to return from abroad.
Revenue mobilisation will be a daunting task given the various tax concessions and administrative forbearance that will have to be allowed to individuals and institutions in these very difficult times, it said.
The government should offer waiver of advance tax for the apparel, leather, jute and jute goods, and agro-processing sectors, said Shams Mahmud, president of Dhaka Chamber of Commerce and Industry.
Amid plunging export orders, the government's intention to raise source tax for apparel shipment from 0.25 percent to 0.5 percent will further weaken the sector.
Mahmud, however, welcomed the proposal for providing 1 percent cash incentive on garment exports.
Given the prospect of non-cotton apparel in the global market and the trade advantages, the exemption of artificial fibre production from tax will directly incentivise investment in the country, said Rubana Huq, president of the Bangladesh Garment Manufacturers and Exporters Association.
This will help diversify the export basket and ship more value-added items, she added.
"Considering the ongoing COVID-19 pandemic and the continuing uncertainty around the crisis, we feel that the GDP growth target of 8.2 percent will be highly challenging," said the Foreign Investors' Chamber of Commerce and Industry (FICCI).
The chamber, however, said the reduction of the corporate tax rate for non-publicly traded companies from 35 percent to 32.5 percent will deepen industrialisation and bring more foreign direct investment to Bangladesh.
"While this is a welcome change, this reduction should be extended to companies and sectors like bank, telecom and tobacco."
It expressed concerns over the proposal of introducing 2 percent withholding taxes on local supply of essential commodities, such as rice, flour, potato, garlic and onion through domestic letters of credit, it added.
M Shahadat Hossain Sohel, chairman of the Bangladesh Terry Towel and Linen Manufacturers and Exporters Association, stressed the need for manufacturing more medical clothing items as the demand for these goods has gone through the roof because of the pandemic.
The European buyers are showing interest in importing hospital garment and other items such as towels, isolation fabrics and bedsheets from Bangladesh, he said.
The government should raise cash incentive on export receipts to 10 per cent from existing 4 per cent at least for the next six months, said Mohammad Ali Khokon, president of Bangladesh Textile Mills Association.
Syed Ershad Ahmed, president of the American Chamber of Commerce in Bangladesh, urged the government to improve the efficiency of the Chattogram port.
Efficient port management is important for attracting foreign direct investment, he said, adding that the government should expedite the VAT refund process.
The government should bring down corporate tax to 12 percent from the proposed 32.5 percent for the garment accessories sector, said Md Abdul Kader Khan, president of the Bangladesh Garment Accessories and Packaging Manufacturers and Exporters Association.
The accessories factories fall under the small enterprise category and hence they cannot survive after paying 32.5 percent corporate tax.
Although the garment exporters enjoy an additional 1 percent cash incentive, the accessories sector is not entitled to such benefit, Khan added.
Mahbubul Alam, president of the Chittagong Chamber of Commerce and Industry, called for quick completion of the projects pertaining to container terminal, overflow yard, bay terminal and bulk terminal at the Chattogram port such that the country's premier port can run more efficiently.