Budget to help draw investment

The proposed budget placed in parliament yesterday is geared towards attracting private sector investment to create employment and to expand business, but some proposals need to be reconsidered, said economists and businesspeople.

The government has been trying to increase private sector investment to 27 percent of the GDP over the last few years although the ratio has been stagnant at 23 percent. The proposed budget will help boost competitiveness and ease business opportunities, they said.

"There are indications in some proposals that both domestic and foreign direct investment (FDI) will increase if the proposals are implemented," said M Masrur Reaz, chairman of Policy Exchange of Bangladesh, a private sector think tank.

"The proposals are steps in the right direction," Reaz told The Daily Star while he was delivering his initial reactions on the proposed budget.

For instance, tax rates have been made uniform for all export-oriented factories, which will encourage local entrepreneurs.

According to the proposed budget, tax rates have been made 12 percent for non-green export industries and 10 percent for all green factories. Till now, only the garment sector had enjoyed this tax benefit.

Currently, many sectors have to pay even 20 to 25 percent tax. Implementation of the proposal will minimise discrimination, he said.

The 21 percent increase in subsidies for the energy, LNG and power sectors as proposed in the budget will boost power supply to industries and reduce cost of doing business, Reaz said.

The government's proposal of increasing allocation for ADP implementation, especially in communications, will help boost the construction sector. As a result, the private sector investment and employment will grow, he said.

Another boost is the reduction of corporate tax by 2.5 percent, irrespective of listed, non-listed and One Person Companies (OPCs), he said.

This kind of gradual reduction will signal to foreign investors that the country is becoming ready to attract more investment.

If the government can implement the allocations in the proposed budget meant for improving port efficiency and smooth communication to make trade easier, it will help attract investment.

The price reductions of steel and rod will boost entrepreneur's confidence to invest more, he said.

The proposed budget will help attract investment in IT, agri-business and power tillers as it has some incentives for those growing sectors.

Ahsan H Mansur, executive director of Policy Research Institute (PRI), said different incentives and reduction of taxes like income and corporate tax will definitely encourage investment.

"So, this budget is business-friendly and it is [a move] in the right direction for attracting investment," he said.

Moreover, more than Tk 82,000 crore subsidy in energy, power, infrastructures and health sector will have positive impacts on investment, he added.

Md Saiful Islam, president of the Metropolitan Chamber of Commerce and Industry (MCCI) said the private sector investment will grow by 0.50 percent from the existing 23 percent because of different encouraging incentives and steps in the proposed budget.

The rationalisation of corporate tax, income tax of RMG and non-RMG and reduction of duty on import of industrial raw materials to 4 percent from 10 percent are very encouraging, Islam said.

Md Shahidullah Azim, senior vice-president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said the government proposed continued support for incentives which will attract investment in the garment sector.

Moreover, the corporate tax reduction, 5.0 percent VAT reduction on subcontracting factories and increasing allocation for skills development will attract investment, he said.

However, he said the source tax at 1 percent and imposition of 1 percent duty on import of solar panels is discouraging, he added.

Mohammad Hatem, executive president of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said although the proposed budget has a lot of positives, but increase of source tax to 1.0 percent from existing 0.5 percent is discouraging.

If government agencies disconnect utilities like electricity, water and gas, businesses will not grow, he said.

However, reduction in corporate tax and uniform tax rates will definitely encourage investment, he added.

Mohammad Ali Khokon, president of Bangladesh Textile Mills Association (BTMA) welcomed aspects of the proposed budget like reducing corporate tax, VAT reduction on sales of man-made fibre to Tk 3per kg from Tk 6per kg. VAT reduction on sales of MMF will encourage investment in the non-cotton sector, he said.

VAT reduction on sale of finished fabrics to 2 percent from 5 percent and continuation of tax at 15 percent for textile sector will encourage investment, he said.

However, higher revenue collection targets in the proposed budget will put pressure on the private sector, he added.

The government's continued incentives for the special economic zones will also help grow investment.