Budget to help draw investment

The budget proposed in parliament yesterday is geared toward attracting private sector investment to create employment and expand businesses, 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, but the ratio has been stagnant at 23 percent. The 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," M Masrur Reaz, chairman of Policy Exchange of Bangladesh, told The Daily Star.

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

The proposed budget has set a 12-percent corporate tax rate 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 20 to 25 percent tax. Implementation of the proposal will minimise discrimination, Reaz said.

The 21 percent increase in subsidies for the energy, liquefied natural gas and power sectors will boost power supply to industries and reduce the cost of doing business, he said.

The government's proposal of increasing allocation for the annual development programme (ADP), especially in communications, will help boost the construction sector.

Another boost is the reduction of corporate tax by 2.5 percent, irrespective of listed, non-listed and one-person companies (OPCs).

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

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 the Policy Research Institute (PRI), said different incentives and reductions 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."

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

Md Saiful Islam, president of the Metropolitan Chamber of Commerce and Industry, said the private sector investment will grow by 0.50 percent from the existing 23 percent thanks to various encouraging incentives and steps in the budget.

The rationalisation of corporate tax, income tax for the RMG and non-RMG sectors and the reduction of duty on the 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's continued support in the form of incentives that will attract investment in the garment sector.

Moreover, the corporate tax reduction, 5 percent VAT reduction on subcontracting factories and increasing allocation for skills development will attract investment, he said.

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

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

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

"However, the cut in the corporate tax rate and the uniform tax rates will definitely encourage investment."

Mohammad Ali Khokon, president of Bangladesh Textile Mills Association, welcomed the aspects of the budget like the reducing corporate tax and the reduction of VAT on the sales of man-made fibre (MMF) to Tk 3 per kg from Tk 6 per kg.

"The VAT reduction on the sales of MMF will encourage investment in the non-cotton sector."

The cut in VAT on the sale of finished fabrics to 2 percent from 5 percent and the continuation of tax at 15 percent for the textile sector will encourage investment, Khokon said.

However, higher revenue collection targets in the proposed budget will put pressure on the private sector, according to the entrepreneur.

"The government's continued incentives for the economic zones will also help attract investment."