FBCCI warns of liquidity crisis

The proposed budget may create a liquidity crisis in the banking sector due to its over-reliance on domestic borrowing for implementing the annual development programme, the FBCCI said yesterday.
"If the government borrows hugely for implementing the ADP, the industrial sector will not get enough loans from the banking system, which will ultimately lead to a higher bank interest rate," said Federation of Bangladesh Chambers of Commerce and Industry President AK Azad, during a press conference at the Federation Bhaban.
In the budget for the next fiscal year, the government proposed bank borrowing of Tk 18,957 crore for meeting the deficit and spending in different sectors.
Raising the tax at source to 1.5 percent from 0.40 percent will hamper the country's exports, Azad said. The FBCCI demanded fixing the rate of tax-at-source on exportable goods at 0.50 percent.
He welcomed the proposal for continuation of the zero duty on imports of rice, pulse, wheat, sugar, edible oil, onion, fertiliser, seeds, life saving drugs and cotton.
Azad welcomed the finance minister's proposal for increasing the supplementary duty on the import of built motorbikes to 45 percent from 30 percent.
The chamber leader urged the government to raise the tax-free income ceiling to Tk 225,000 instead of the proposed Tk 185,000.
He said the government proposed tax holiday for certain sectors according to the industrial policy. The tax break period for physical infrastructure such as roads and bridges was recommended for 10 years, instead of the existing five or seven years. The FBCCI welcomes the proposal, he said.
He said the proposal to reduce duty on the imports of capital machinery, liquefied petroleum gas cylinder and chemical of effluent treatment plants would have a positive impact on industrial growth.
He welcomed the proposal for raising supplementary duty on the import of furniture to 30 percent from 20 percent. He said this would help protect local furniture builders.
The budget proposed to reduce turnover tax on small and medium enterprises to 3 percent from 4 percent. However, annual turnover margin remains at Tk 60 lakh. The FBCCI proposed that the margin be raised to Tk 1 crore.
"It seems that the government tried to propose a growth and industry-and-business-friendly budget for 2011-12. The government prioritised agriculture, power and energy and infrastructure sectors. The government also tried to protect the local industries. We welcome such initiatives," Azad said.
"The growth of the industrial sector will be hampered if the government does not follow the proposals of the FBCCI," he claimed.
FICCI
The Foreign Investors Chamber of Commerce and Industry (FICCI) in a release yesterday said the budget is heavily dependent on borrowing from the banking system.
This may tighten the liquidity situation and cause an upward trend in the deposit rates with consequent effects on the lending rates making funds for trade, commerce and industries costlier and pushing the inflation even higher, noted the statement.
It expressed concerns about charging a minimum tax at 0.5 percent on a company's gross receipts irrespective of profit or loss and the special provision for investment of undisclosed income in the government's Treasury Bonds paying tax at 10 percent.
The chamber, however, appreciated the budgetary measures especially in the energy and power, rural development, education, information and communication technology (ICT), infrastructure and environment sectors.
BTMA
Bangladesh Textile Mills Association (BTMA) said the raise in advance income tax at sources from 0.45 percent to 1.5 percent would spell trouble for the export business.
The association urged the finance minister to withdraw the proposal.
Though the minister proposed to extend the tax holiday facility to 2013, the primary textile sector has been excluded from the list of beneficiaries. As a result, the facility will not serve any purpose, noted a BTMA release.
The government's decision not to withdraw duties and taxes on pet chips, chips, acrylic toe and tops, polyester and viscose staple fibre in the upcoming budget would increase dependency on cotton and ultimately deepen the yarn crisis further, added the statement.
BTMA also expressed dissatisfaction over not increasing the cash incentive to 15 percent from 5 percent.
BASIS
Bangladesh Association of Software and Information Services (BASIS) voiced frustration as it did not find any reflections of the Digital Bangladesh dream in the budget.
According to the ICT policy, there are 306 action items. It would have been suitable for the sector had the government allocated at least 10 percent of the proposed Tk 700 crore fund to be raised for the development of the ICT industry as per a significant action item, observed BASIS.
The industry hoped the government would extend the tax holiday facility for the sector until 2018 in accordance with the ICT policy.
REHAB
The Real Estate and Housing Association of Bangladesh (REHAB) expressed disappointment over increasing the income tax for commercial building to 10 percent.
The decisions, if implemented, would hurt the real estate sector, noted a REHAB statement.
BJSA
Bangladesh Jute Spinners Association (BJSA) stated though the government proposed to provide Tk 1,170 crore assistance for state-owned jute mills to make up for losses and turn the sector lucrative, it did not take any initiative to help the private owners' mills.
BGFFMEA
Harun-Ur-Rashid, president of Bangladesh Grey and Finished Fabrics Mills and Exporters' Association (BGFFMEA), in a statement said the budget has no direction for the development and protection of the textiles sector. There is also no mention of raising the cash incentives for the sector.
The BGFFMEA demanded an increase in cash incentive to 15 percent from the existing 5 percent, fixing a single digit interest rate and setting the price of diesel and furnace oil at Tk 30 and Tk 26 respectively.
Harun, also the chairman of Asian Group, welcomed a budget proposal to increase the import duty on all kinds of cloths to 45 percent from 20 percent.
CCCI
Murshed Murad, president of Chittagong Chamber of Commerce and Industry (CCCI), lauded the government for extending the current tax holiday facility and introducing a new tax exemption facility for investment.
He also appreciated the government for proposing zero rate of customs duty on food goods, medicine, raw cotton and fertiliser.
BFFEA
Bangladesh Frozen Foods Exporters Association (BFFEA) requested the government to withdraw 10 percent surcharge on the wealth tax and reduce tax at source on the export earnings from 1.5 percent to 0.25 percent.