Finance Minister AHM Mustafa Kamal on Thursday unveiled the Tk 6,78,064 crore national budget for the 2022-23 financial year, with a deficit financing of Tk 2,45,064 crore, or 5.5% of the total budget outlay.

Prime Minister Sheikh Hasina, also the Leader of the House, was present in parliament along with lawmakers from the treasury and opposition benches.

The finance minister in his budget speech outlined above half a dozen challenges to the economy and mentioned a similar number of priorities to make a turnaround in the economic landscape reeling due to the Russian-Ukraine war and the impacts of the Covid-19 pandemic.

The budget has projected a 7.5 per cent growth in the economy.

While inflation was cited as a top priority in the budget speech, no specific measure to contain the uncontrolled price pressures was mentioned in the budget, or in the Finance Bill 2022.

“In preparing the budget for the next fiscal year, top priority has been given to containing inflation stemming from the fallout of the Covid-19 pandemic since the beginning of 2020 and the Russia-Ukraine crisis,” Kamal said in his speech.

It was largely expected that the draft budget will eliminate or reduce import duties on essential food items and other essential commodities. But no such move was found in the budget, frustrating all walks of consumers, particularly those falling under the marginalized, lower-income group and middle class.

In the segment of social safety net programmes, no significant allowance hike was proposed to adjust the inflationary pressure. Pensioners, fixed income groups and day-labourers will have no respite following the budgetary proposals.

Even no hand-out was announced, or allocation earmarked for the new poor and sandwiched consumers belonging to the lower and middle classes.

However, the draft budget has brought joy to the business community which is the largest job provider in the country. Corporate tax has been slashed by 2.5 per cent, and tax for all kinds of exporters has been cut to 12 per cent. This business-friendly budget, however, lacks incentives even for government employees.

The finance minister also proposed a supplementary budget for the outgoing FY2021-22. The revised budget outlay was proposed at Tk 5,93,500 crore and revenue income at Tk 3,92,192 crore. Also, he proposed an NBR revenue collection target of Tk 3,30,000 crore and a 5.1 per cent deficit for the budget of FY2021-22.

The major challenges:
Outlining major deterrents in the upcoming fiscal year, the finance minister mentioned half a dozen major challenges.

They include containing inflation and enhancing domestic investment; financing additional subsidies required for the increased prices of gas, power and fertilizer in the international markets; utilizing funds available through foreign assistance and ensuring timely completion of high priority projects of ministries/divisions; ensuring timely completion of projects in education and health sectors; increasing collection of local Value Added Tax and raising the number of individual tax-payers, and maintaining stability in the exchange rate of taka and keeping foreign exchange reserves at a comfortable level.

He also outlined the fiscal burden on the government due to soaring import costs. “It is to be noted that importing the same volume of nine essential commodities for Bangladesh (crude oil and refined oil, LNG, wheat, fertilizer, palm oil, coal, soybean oil, maize and rice) would cost an additional US$ 8.2 billion in 2022 in comparison to 2021 due to price hike.

Besides commodity prices, prices of industrial raw materials, other consumer goods prices, and the cost of international transportation are also rising. Consequently, there is a pressure of imported inflation in the local market,” he said.

Business-friendly tax rates:
Kamal’s conditional tax cut is expected to encourage corporations to go public as he proposed a tax cut by 2.50 per cent for both listed and non-listed firms in case they offload more than 10 per cent share in the stock market.

To generate more employment by increasing investment, the government has set a target of 31.63 per cent investment of the GDP in the proposed budget for FY23. If the target is attained, the country will witness an investment of Tk 14,00,000 crore in the next fiscal year, of which Tk 11,09,820 crore will come from the private sector and Tk 2,97,702 from the public sector.

The government plans to introduce a 12 per cent unified tax rate for all general industries that export goods and services to encourage diversification of export goods and ensure a level playing field in FY23.

In his budget speech, the finance minister said, “The prevailing tax rate for the export-oriented RMG sector stands at 12 per cent for general factories and 10 per cent for green factories.

“With a view to encouraging diversification of export goods and ensuring a level playing field for all other sectors exporting goods and services, I propose to introduce 12 per cent tax rate for all other general industries exporting goods and services and 10 per cent for all other green industries exporting goods and services.”

For FY23, Kamal has proposed reducing corporate tax rates to help achieve the private investment to gross domestic product (GDP) ratio target. He has proposed cutting the tax rate to 20 per cent from the existing 22.5 per cent for listed companies that issue shares worth more than 10 per cent of their paid-up capital through an initial public offering (IPO).

He proposed reducing the corporate tax rate for non-listed companies from 30 per cent to 27.5 per cent.

Also, to facilitate the economy’s formalisation and incentivise the formation of one-person companies (OPCs), the minister proposed lessening the tax rate for OPCs from 25 per cent to 22.5 per cent.

Earlier, stock market stakeholders urged to keep a 15 per cent gap in corporate taxes between listed and non-listed companies in the FY23 budget to attract healthier firms to the bourses.

The corporate tax rates in Bangladesh are higher than the Asian average of 21 per cent and the global average of 24 per cent, according to KPMG, a global network of professional firms providing audit, tax and advisory services.

Bangladesh’s tax rates for companies are also higher than the rates in Vietnam, Thailand, Malaysia, China, Indonesia, Sri Lanka, and Pakistan. Vietnam and Thailand levy a 20 per cent tax on companies while the rate is 24 per cent in Malaysia and 25 per cent in Indonesia.

Good news for money launderers
The proposed budget, with a payment of a certain rate of tax as a penalty, offered amnesty for money launderers to get their laundered money back.

According to the proposed provision, no authority, including the income tax authority, will raise any question regarding the source of any asset located abroad if a taxpayer pays tax on such assets.

The minister proposed a 15 per cent tax on immovable property not repatriated to Bangladesh, 10 per cent on movable property not repatriated to Bangladesh and 7 per cent on cash and cash equivalents repatriated to the country.

It is believed the budgetary measure will help repatriate looted money into the economy, although the provision questions the morality of the fiscal directions of the government.

Kamal said, the proposed provision, when implemented, will increase the flow of foreign currency to the economy, increase income tax revenue and the taxpayers will also feel relieved by availing this opportunity to declare their assets and money acquired/earned abroad in their respective income tax returns.

The budget also announced to introduce a Digital Currency to encourage start-ups and e-commerce businesses. The government also plans to initiate Digital Bank in future.

“The main purpose of launching Central Bank Digital Currency (CDBC) is to facilitate the currency in virtual transactions and to encourage startups and e-commerce businesses,” said Kamal in the budget speech.

What about revenue?

The government’s total revenue earnings for FY23 have been estimated at Tk 4,33,000 crore, up by 11.30 per cent from the outgoing FY2020-21.

Of this, NBR will collect Tk 3,70,000 crore, which is 12.12 per cent higher than this fiscal year’s target, and the rest of Tk 63,000 crore will be collected from other sources.

For FY23, the total size of the expenditure budget has been estimated at Tk 6,78,064 crore, which is 15.2 per cent of GDP.

Tk 4,31,998 crore has been allocated for operating and other expenditures, while Tk 2,46,066 crore for the Annual Development Programme.

For public-private partnerships (PPP), financial assistance to different industries, subsidies, and equity investments in state-owned, commercial and financial institutions, a total of Tk 53,155 crore has been proposed — which is 7.84 per cent of the total allocation.

“It appears from the economic variables that indicate that the second wave of Covid-19 continued in the first quarter of the current financial year but did not have a significant negative impact on the economy,” the finance minister said.

“Considering overall perspective, this fiscal year’s GDP growth is forecasted at 7.25 per cent. At the same time, the growth rate has been targeted to be 7.5 per cent for the next FY2022-2023, considering the lagged effects of the Covid-19 and the protracted crisis arising from the Russia-Ukraine conflict,” he added.

In his budget speech, Kamal mentioned several priorities for the government. They include tackling inflation, boosting the agriculture sector, ensuring food security, improving the skills of human resources, boosting domestic investment, increasing exports and promoting export diversification, job creation, and rural development.

However, no roadmap to achieve the priorities was laid down in the budget.

Transport and communication
In the draft budget, Kamal also drew a rosy picture of IT start-ups.

“At present, there are more than 2,500 startups in the country. About 15 lakh people have been directly and indirectly employed in the startup sector.

“Our future plan is to increase exports in ICT sector to US$ 5 billion and IT-based employment to thirty lakh by 2025 and to execute this plan, adequate budget is being allocated for this sector,” reads his budget speech.

For the transport and communication sector, he proposed to allocate a total of Tk 81,518 crore in the budget for FY23, which was Tk 72,029 crore in FY22.

Universal pension scheme
The draft budget has also proposed launching a National Social Insurance Scheme and a universal pension scheme in the country.

“It is high time to establish a universal pension system in Bangladesh as at present the number of working people is much higher than the elderly population. Under various programmes for social protection of the elderly and needy communities, our government is providing allowances to about 1.15 crore beneficiaries.

“Bearing in mind, the government’s election pledge, a policy decision has been taken to enact the ‘Universal Pension Management Act, 2022’ to introduce a universal pension system to ensure a sustainable social safety net for the elderly and the needy people,” the finance minister said in his speech.

“The law has already been drafted. After passing through all necessary formalities, it will be possible to present this important law to the National Parliament by 2022- Inshallah,” he added.

Other taxes
The proposed budget has offered a bunch of tax breaks for businesses at import and manufacturing levels.

It patronized local heavy industries like pharmaceuticals and the vehicle manufacturing industry. For example, the draft budget made imported motorcycles costlier to back the local industry.

Kamal in the draft budget proposed a reduction of the rate of tax at source on supply of trading goods from 7 per cent to 5 per cent, and on supply of books, except government supply, from 7 per cent to 3 per cent.

To reduce the cost of production in industries, he proposed to cut the rate of tax at source on the supply of raw materials to manufacturers from 7 per cent to 4 per cent.

However, the minimum tax threshold of tax-free income remained unchanged in the proposed budget, although official inflation is above 6 per cent.

He also proposed to raise the rate of source tax on bank interest for company taxpayers to 20 per cent from 10 per cent and to raise the rate of source tax on export proceeds to 1 per cent from 0.5 per cent.