$1b in budget support arrives next week
About $1 billion in budget support is set to arrive in the next few days from three development partners to help the government meet its deficit financing for this fiscal year.
Of the sum, $400 million is coming from the Asian Development Bank, another $400 million from the Asian Infrastructure Investment Bank and $216 million from the Japan International Cooperation Agency.
Yesterday, the boards of the AIIB and the ADB approved the loan. The approval for the loan from Jica is expected by next week.
The amounts would enter the Bangladesh Bank's vault as soon as the loans are approved by the boards as Bangladesh has been able to meet more or less all the conditions, The Daily Star has learnt from finance ministry officials involved with the proceedings.
However, the inflow would not be enough to prop up the country's net international reserves enough to meet the $24.46 billion floor set by the International Monetary Fund to get the second tranche of the $4.7 billion sanctioned.
All three loans' conditions are synchronised and drawn upon by the ADB, which is serving as the lead financer.
The conditions would "enable Bangladesh to enhance revenues, promote efficiency and transparency in public spending and public procurement, deepen the reforms of state-owned enterprises and help small businesses and microentrepreneurs to access low-interest affordable credits from the banking sector", said Aminur Rahman, principal public management economist for ADB's South Asia region.
With a strong focus on gender, climate change and digitisation, the conditions would also enable the government to strengthen its efforts to support income generation for the poor and vulnerable, he said in a press release.
One of the major conditions is securing parliamentary approval to amend the Income Tax Ordinance, 1984.
Finance Minister AHM Mustafa Kamal placed the Income Tax Bill 2023, which accommodated the lenders' recommendations, in the parliament on June 8.
The draft was sent to the parliamentary standing committee for the finance ministry for scrutiny. The committee has been asked to submit its report within five working days.
Some of the contentious issues in the forthcoming income tax bill came at the lenders' behest such as the mandatory income tax return submission by any individual who has spent Tk 4 lakh abroad (excluding pilgrimage-related travels) in the previous income year.
Another condition is consolidating and revising the law on income taxes to address new and emerging issues such as base erosion and profit shifting by global internet-based entities, transfer pricing, derivative transactions in the capital market and thin capitalisation.
The government must also secure parliamentary approval to amend the Income Tax Ordinance, 1984 or issue SRO (as appropriate) for the withdrawal of selected income tax exemptions.
Enable improved tax compliance, enhanced oversight over tax administration, ensure the integrity and accuracy of tax collections, and minimise tax avoidance through identifying discrepancies in respect of tax liabilities and payments of firms and businesses:
The National Board of Revenue will have to issue orders for information exchange between the large taxpayer units of VAT and income tax, introduce risk-based VAT audits and adopt a risk-based audit manual.
The revenue authority will also have to issue an order to expand the electronic deduction of income tax at-source system in at least 6 more tax zones.
The revenue authority has also mandated online payment of VAT amounts exceeding Tk 1 crore as per the ADB's recommendations.
Online payment of income tax for amounts exceeding Tk 20 lakh and pilot online personal income tax return filing by taxpayers with income exceeding Tk 70 lakh are two more conditions.
The government has closed down loss-making sugar mills under the Bangladesh Sugar and Food Industries Corporation as per the lenders' demand with the view to freeing up scarce public resources.
Facilitate streamlining of public procurement, strengthen professionalism in public procurement and enhance efficiency:
Another condition is securing cabinet approval for the Bangladesh Public Procurement Authority bill for the establishment of an autonomous public procurement authority.
Transparency and efficiency in public procurement will be enhanced through strengthening electronic procurement and electronic payment systems, while approval of public projects will be facilitated through the newly launched digital system of public project appraisal and approval process, according to ADB.
If the policy actions are implemented sincerely, Bangladesh's tax-to-GDP ratio will increase to 8.8 percent from 7.9 percent at present by December next year.
The new package also stipulates the launch by the Bangladesh Bank of innovative financing services through commercial banks to provide low-cost microcredit using digital channels and e-wallets.
It facilitates bank lending to marginalised and landless farmers, small traders and low-income earners. Micro and small businesses and women entrepreneurs who do not possess land or property will also be able to access finance based on their trade receipts and other forms of nonfixed collaterals, such as small equipment and machinery.
Meanwhile, under a separate arrangement, Korea will provide $100 million and the OPEC Fund for International Development another $100 million this month.