Altered budget evokes mixed reactions

The 2009-10 budget proposals amended finally in the Finance Bill have drawn mixed reactions.
The corporate world, particularly the banks and leasing firms, has hailed the move to slash corporate tax rate by 2.5 percentage points to 42.5 percent, but the insurance sector reacted cautiously.
Businesses, market operators and experts asked government to increase supply of securities in line with more investment of untaxed money in the capital market.
Still, correction in the duty structure has not made car importers and mobile phone operators happy. They anticipate slack sales.
The government approved the Finance Bill for FY10 on Monday and the Tk 1,13,819 crore national budget yesterday.
A debate surfaced in different circles soon after the placing of the budget proposals by Finance Minister AMA Muhith in parliament on June 11.
The black money whitening remained the most- talked-about issue for the past three weeks.
Businesses were also divided over such provision. The Federation of Chambers of Commerce and Industry (FBCCI) adopted a promoter's role and other chambers, including the Metropolitan Chamber of Commerce and Industry (MCCI), were opposed to the amnesty to black money holders.
MCCI President Abdul Hafiz Choudhury said such a move would discourage general and honest taxpayers.
“It will increase tax-dodging tendency, as there will be a scope to legalise untaxed money with a flat tax rate of 10 percent,” Choudhury said.
However, he hailed the government at least for cutting the whitening period to one year from three years.
Annisul Huq, president of FBCCI, is rigid on his stand saying that he never favoured whitening of black money; rather legalising undisclosed or untaxed money through investment in the industrial sector.
Huq said the way of disclosure of sources of fund should be made simple to make the move successful.
Black money investment is also welcomed by stock market operators. They stressed new securities to make the market stable.
If huge undisclosed money is injected into the share market and the supply side is not sufficient, an imbalance might be created, said Salahuddin Ahmed Khan, professor of Finance at Dhaka University.
“Due to lock-in system the invested money will be stuck up for two years and it will create an imbalance in the market,” said Khan, also the former chief executive officer of Dhaka Stock Exchange. He however said the modification is much better than what was proposed.
DSE President Rakibur Rahman said the government should offload its stakes in different entities to match the supply-demand side for securities.
“To attract the private sector companies to be listed with bourses, we will organise road shows,” Rahman laid bare his plan.
Banks, insurance, leasing and finance companies have long been demanding a corporate tax cut from the existing 45 percent and the demand was raised afresh this year as incomes of the corporate sector, especially banks, eroded because of the global recession fallout.
“The rate cut will benefit owners and shareholders and help increase banks' net profit,” said M Ehsanul Haque, managing director of Prime Bank.
Mahbub-ur-Rahman, head of corporate banking of HSBC, said the initiative would help implement the central bank's directives, particularly with regard to lending and spread cut ones.
Mafizuddin Sarker, president of Bangladesh Leasing and Finance Companies Association, said now they would be able to pass the rate cut benefit on to the clients. “Lending rate and charges will come down,” Sarker hoped.
But the insurance sector expressed mixed reactions, mainly because of meddling insurance with the banking sector.
“The government usually mix up insurance with the banking sector when it comes to corporate taxes. But this is not fair,” said Nasir A Chowdhury, managing director of Green Delta Insurance.
He criticised the government for not reducing the tax rate on life insurance. “Taxes on life insurance is less than 20 percent in India, but it is 45 percent here.”
Car importers said the correction measures could not stop the downtrend in sales.
The final budget for the fiscal 2009-10 set 30 percent duty on the imports of cars up to 1500 cc. A 45 percent duty was proposed in the budget first. The duty for 1501cc to 2000cc has been set at usual 100 percent, duties on 2001cc to 2750cc and 2750cc to 4000cc remained unchanged to 250 percent and 350 percent respectively. Importers for above 4000cc cars will have to pay 500 percent duty, which was proposed 350 percent.
Microbus importers up to 1800cc will have to pay 20 percent duty, which was 30 percent in the proposed budget. However, hybrid cars up to 2000cc have been kept away from the tax structure.
The changes are nothing but eyewash,” said Habibullah Don, president of Bangladesh Reconditioned Vehicles Importers and Dealers Association (Barvida). According to him, still the duty structures are much higher than those of FY 2008-09.
The mobile industry partially got some relief. The minister reduced mobile set import tax to 12 percent from the proposed 25 percent.
However, the minister did not mention about SIM tax, which means Tk 800 tax on each new mobile connection would remain unchanged.
“The new budget seems to be fairly progressive, but we are disappointed to see that the SIM tax remains unchanged,” said Oddvar Hesjedal, chief executive officer of Grameenphone.