Finance minister draws a bead on economic recovery

The national and global lockdown measures aimed at battling the Covid-19 pandemic have taken their toll on Bangladesh's industrial production, obliterating tens of thousands of jobs, incomes and demand.

And for the first time in 30 years, the poverty curve, which has been on the downward since fiscal year 1992, is set to reverse the trend.

The peril does not end here.

Exports and remittance, two major sources of external financing, plunged as the rogue virus pushed the global economy to the worst-ever recession since World War II. Uncertainty about the course of the pandemic held back much-needed private investment.

About 97.3 per cent of firms faced work order cancellation or low market demand, said Economic Research Group (ERG), a local think-tank, in a survey of 102 firms. Compared to May 2019, firms reported they operated at only 58.8 per cent capacity in May.

"The sight beyond June was incomprehensible and most responses reveal the uncertainty the firms face," said the ERG in its summary findings released on June 6.

Under such a bleak economic prospect and health emergency Finance Minister AHM Mustafa Kamal unveils the budget for the fiscal year 2020-21 today.

This will be the second budget to be placed by the septuagenarian and the nation will eagerly look at what fiscal steps he comes up with for entrepreneurs and citizens to take the economy to the path of recovery, protect and create jobs and lift millions of people out of the trap of hunger and poverty.

For the first time since 1980, Bangladesh is forecasted to post its lowest-ever GDP growth. The World Bank earlier this week said the economy would grow by 1.6 per cent in FY20, in a stunning decline from the 8.15 per cent logged last fiscal year.

The finance ministry appears to be preparing accordingly. "This is not going to be any traditional budget," it said in a press release yesterday.

This year's budget, with a theme of economic revival and way forward, has been framed in line with the government's past achievements and current circumstances, it said.

The highest importance has been given to the health sector and the agriculture sector has also received increased attention as the government looks to ramp up food production and create jobs.

Various measures -- from expanding social safety net schemes to salvage affected industries and create jobs—are going to be proposed for the next fiscal year, the finance ministry said.

Taxmen and the finance ministry said they considered different fiscal measures to support income, jobs and industries in the next fiscal year.

One of the expected steps is reduction in corporate tax rate for non-listed companies, as the government looks to help them withstand business losses for the demand plunge in domestic and global markets.

Non-listed companies are expected to see a 2.5 percentage points cut in tax to 32.5 per cent from 35 per cent now. The current rate of corporate tax has been unchanged for the last six years, showed data from the National Board of Revenue.

The measures came at a time when a majority of the firms had to shut operations and lose business for the shutdown since March 26. 

The ERG study finds that 57.6 per cent of the firms remained closed even after 45 days of the announcement of the lockdown. More than a quarter of the firms reported about their inability to pay salaries beyond May and 80 per cent would not be able to pay beyond September.

In another rapid survey among 42 firms recently, the Centre for Policy Dialogue said all the firms claimed that there has been an adverse impact on export owing to Covid-19. And 73 per cent reported an effect on production and import.

In order to stimulate investment and give relief to businesses, the government is likely to bring down the turnover tax rate for small and medium enterprises recording turnovers of Tk 50 lakh to Tk 3 crore annually.

To inject funds into the formal economy, the government may offer black money-holders an opportunity to legalise their untaxed assets upon payment of 10 per cent tax for disclosed incomes and investment.

The government plans to offer amnesty so that no agencies can raise question about the sources of funds.

Kamal is considering to offer tax holiday benefit to seven new sectors, including transformer and nanotechnology-based manufacturing in order to stimulate private investment, which has stagnated around 23 per cent of the GDP for the last four years.

The tax-free income limit would be increased to Tk 300,000 after keeping it unchanged at Tk 250,000 for the last five years, in a bid to give some breathing space to taxpayers in the lower income bracket.

A new tax slab of 5 per cent for the taxpayers in the lower income bracket is likely to be introduced for the first time after the government maintained 10 per cent as the lowest tax rate for more than two decades.

The government is also pondering easing tax burden on high income individuals, again after six years. The highest tax rate is going to be slashed to 25 per cent from 30 per cent at present.

However, the owners of cars and jeeps would face higher advance tax during registration and fitness renewals as the government aims to collect 58 per cent of the Tk 568,000 crore budget from taxes.

As the economy is reeling under the coronavirus-induced slowdown and tax collection plunged, the target for the NBR has been fixed at Tk 330,000 crore, just 1 per cent higher from the actual target of Tk 325,600 crore in the outgoing fiscal year.

The NBR would rely on the collection of the value-added tax (VAT) and supplementary duty once again. The indirect tax paid by consumers is the biggest source of revenue for the state-coffer and the NBR has been tasked to collect Tk 182,000 crore in FY21.

Among other measures, the government is likely to increase the tax on mobile SIM cards and import duty on mobile handsets.

It looks to collect an increased amount of tax in the form of excise duty on bank balances and air travel. In FY21, the high-ticket account-holders are going to face higher excise duty, according to a finance ministry official.

However, as imports dropped and income shrank, the government has slashed the collection targets from income tax to Tk 103,000 crore. It marginally hiked import tariff target to Tk 37,800 crore.