New jobs to stay elusive

The parameters of employment generation show it would be a tough task for the government in the next fiscal year to create adequate jobs, which is a key element for higher economic growth. A slowdown in private investment, checking declining trend in remittance and transforming potential workforce into skilled manpower will be major challenges for the government. The finance minister identified inadequate employment generation as a major concern in his budget speech yesterday (Thursday). The minister also stressed employment generation growth in various sectors to attain the targeted 7.2% GDP growth in the coming fiscal year.

The unemployment rate stood at 4.3% at the end of September last year, according to Bangladesh Bureau of Statistics (BBS) Labour Force Survey. The Centre for Policy Dialogue last week said Bangladesh had failed to create adequate jobs despite higher economic growth in recent years. The economic growth, particularly since 2013, could not result in enough job creation, it said, adding that the number of jobs rose impressively during 2002-2013, by 13.6 lakh per year. According to BBS, private sector investment came down to 21.78% in this fiscal year, from 22.07% in the last fiscal year. The inward remittances fell 7.75% year-on-year to $1.19 billion in April. In the first 10 months of this fiscal year, $12.23 billion was received as remittance, down 2.39% year-on-year, according to the central bank data.

Revenue target very ambitious

While economists have praised the proposed budget’s emphasis on mega projects, skill development and job creation, they have termed the revenue generation target very ambitious. “The emphasis on mega projects is appropriate and timely. But the success will hinge on their implementation,” notes Ahsan H Mansur, executive director of the Policy Research Institute (PRI) of Bangladesh, a think-tank. “In the past, we have seen good initiatives, but they were not successful,” he said, referring to the public-private partnership which he thinks has not produced any positive result yet. AB Mirza Azizul Islam, a former finance adviser to caretaker government, said the targets set in terms of some critical indicators were unlikely to be achieved.

The proposed budget projects that the tax revenue collection by the National Board of Revenue (NBR) would grow by 35%. “This is something which, I think, will be impossible to accomplish,” observes Mirza Azizul. The year-on-year revenue growth, he elaborates, was maximum 22% in the history, and it ranged between 8 and 12% in the recent years. The same is also true in case of non-tax revenue, the growth target of which has been set at over 35% from that in the revised budget of the outgoing fiscal year, said the former adviser. Historically, the revenue generated by the NBR did not grow by more than Tk 20,000 crore a year. But the proposed budget sets the goal at more than Tk 53,000 crore from the existing revised budget.

Middle-class hit by tax burden

Corporate tax remains unchanged despite demands from businesses for a reduction. Taxmen say the previous reduction to 35% did not bring expected benefits in terms of compliance. Only readymade garment makers, who have been demanding for tax cut, will get a slash to 20% from present 35%. The reduction, however, could not make the apparel makers happy. But honest taxpayers may feel happy to see various measures taken to ensure compliance and curb tax avoidance and evasion. Any person working in public entities, including semi-govt and autonomous bodies, and draw a monthly salary of Tk 16,000 and above will have to submit income tax returns. Those working at supervisory positions in non-government entities must have Taxpayers Identification Number. In addition, withholding tax returns submitted by companies and cooperative societies will face audits. About 250,000 public and private entities are responsible for deducting withholding or source tax, which accounts for 57% of the total direct tax collected. If any taxpayer enjoying tax exemption or reduced tax rate fails to submit return in any year, he will lose the privilege. The tax authority collects the withholding tax from 58 sectors by charging various rates, and the rates will rise. For example, exporters, including apparel makers, are likely to pay 1.5% tax at source, up from 0.6% this fiscal year — a move which a senior tax official said might bring the state Tk 3,000 crore. In fiscal 2014-15, the tax authority collected Tk 1,100 crore in source tax from the export-oriented sectors. Similarly, the rate of minimum tax for companies, mainly those having yearly gross receipts of more than Tk 50 lakh, has been proposed to increase to 0.6% from present 0.3%. However, the rate will be 0.75% for mobile phone operators and 1% for tobacco producers. Taxmen said the minimum tax has been imposed as many corporate taxpayers take advantage of loopholes in tax laws, rebates and exemptions to avoid tax. However, the concessional rate of 0.1% will continue for newly established manufacturing entities in the first three years to facilitate industrialisation.

Vat to push up cost of living: new law proposed to be partially effective

The government has backtracked from its decision to roll out the new VAT law from July due to resistance from businesses and a section of revenue officials and inadequate preparation from the National Board of Revenue.

The VAT and Supplementary Duty Act 2012, which envisages a universal 15% VAT rate, will now take effect from July 1, 2017. Instead of going for the new law, Muhith sought to continue collecting the indirect tax under the existing VAT law of 1991 but proposed tight measures for various sectors. Small businesses in Dhaka and Chittagong city corporations will have to pay package VAT of Tk 28,000, instead of Tk 14,000. The rate has also been increased for shops in other city corporations and towns. However, the existing trade VAT of 4% at all levels of wholesale and retail sales will remain unchanged. The VAT rate will be 15% for the traders, who are willing to pay VAT on actual value addition. For them, input tax credit and adjustment facility on easy terms would be available. Abdul Matlub Ahmad, president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), welcomed the continuation of existing VAT law and package VAT. VAT determined by tariff value on nearly 30 products will go up, depending on the type of item. The items include corrugated iron sheet, rod, paper and tissue, a move which is likely to disappoint related industrial sectors. Prices of these items may increase. Besides, VAT exemption benefits have been withdrawn on some items such as generator, hardboard, cake and bread worth above Tk 100, biscuits, clothes made by power looms, and plastic and rubber sandals. VAT on rents of office space and installation services will also go up to 15% from 9% now. The new law will boost the state’s revenue collection by as much as 20% from Tk 32,276 crore in fiscal 2014-15, finance ministry officials said.

Focus on fast-track projects

The government has given top priority to eight fast-track mega projects in the upcoming budget, setting aside Tk 18,727 crore for them. For the first time, a special booklet was placed in parliament, along with the proposed budget.

The mega projects are the Padma bridge, metro rail, Rooppur nuclear power plant, Rampal power plant, Payra sea port, Matarbari power plant, Padma bridge rail link and Dohazari-Cox’s Bazar-Gundum rail line. However, no allocation was made for the two other fast-track projects — Sonadia deep sea port and LNG terminal — as they will be implemented on govt-to-govt (G2G) basis. Also plans to include three more projects in the list of mega projects. They are Matarbari coal terminal, Bhola gas pipeline, and petrochemical industry in coastal area. Experts have welcomed the government initiative, saying it would speed up implementation of the priority projects.

PADMA BRIDGE

Tk 6,026.48 crore is allocated, up by around 68% from outgoing fiscal year. An allocation of Tk 3,592 was made for the Tk 28,793 crore project in FY 2015-16. 34% of the project work has already been completed. The govt wants to inaugurate the bridge by December 2018.

PADMA RAIL LINK

The govt last month incorporated the Tk 34,989-crore Padma bridge rail track project in the list of fast-track project. Under the project, a 172-km rail track would be built between Dhaka and Jessore. Of the funds, the govt will provide Tk 10,239 crore and China Tk 24,794 crore.

DOHAZARI-COX’S BAZAR-GUNDUM RAIL LINE

The country’s largest railway project, taken up in July 2010, has seen only 2.1% progress. Under the project, single-line dual gauge railway tracks would be built from Dohazari to Cox’s Bazar via Ramu, and Ramu to Gundum near Myanmar. The Asian Development Bank will provide Tk 13,115 crore for the project, and the rest will come from government funds.

METRO RAIL

The government plans to commission the Metro Rail Project [MRT line-6 from Uttara to Motijheel] ahead of its 2024 deadline. Work on the first part of the 20-km vital rapid transit project from Uttara would be completed by 2019. Japan International Cooperation Agency (JICA) will provide Tk 16,594 crore for the project.

PAYRA SEA PORT

The government has allocated Tk 200 crore for the upcoming fiscal year for primary work of the project, which has 19 components. Last week, the government signed the first memorandum of understanding (MoU) for the project with Belgian company Jan De Nul for capital and maintenance dredging involving an estimated $2 billion.

ROOPPUR NUCLEAR POWER PLANT

The first phase of the 2,400 megawatt nuclear power project has seen considerable progress since Bangladesh signed the project agreement with Russia in January 2013. A company has been set up to run the plant. The government wants to complete at least one unit of the project by 2018 while the deadline for its completion is 2023.

MATARBARI POWER PLANT

Land acquisition has already been completed. JICA will provide Tk 28,939 crore for it.

RAMPAL POWER PROJECT

Work related to land development and construction of boundary walls in the 1,320MW project is almost finished. It was launched by a Bangladesh-India joint venture company in 2010.

The Appellate Division on Thursday dismissed Bangladesh Garments Manufacturers’ and Exporters’ Association’s petition challenging a High Court order to demolish its unauthorized 15-stoyed building on the Hatijheel Lake in the capital. A four-judge bench chaired by Chief Justice SK Sinha dismissed the petition in which the BGMEA sought the permission to appeal against the High Court Division’s order. On April 3, 2011, the High Court Division gave the order to the government to demolish the BGMEA Bhaban within 90 days. Rights lawyer Manzill Murshid later said that the apex court’s decision paved the way for the demolition of the unauthorized building that created huge controversies.The HC called the BGMEA Bhaban as a cancerous growth that eclipse the Hatirjheel, a beauty spot of the capital. In the verdict, the HC directed the BGMEA to return money to buyers of commercial spaces in the BGMEA Bhaban within 12 months. Rajdhani Unnayan Katripakkha would take action after getting a copy of the apex court’s decision, Rajuk acting chairman Md Abdur Rahman told New Age.‘Of course we will comply with the court directive,’ he said.BGMEA’s lawyer Rafique-ul Huq said that the apex court decision would require demolition of the BGMEA Bhaban.He also said that he would advise the BGMEA to immediately seek review of the Appellate Division’s decision. The HC verdict declared the BGMEA Bhaban as illegal as the BGMEA could produce no document to show that the building was built on its land. As the land belonged to the government no private organization could construct its building on it, said the HC. The HC had directed the government to demolish the BGMEA Bhaban within 90 days. The HC gave the verdict while disposing of a suo moto rule it had issued on October 3, 2010 asking the government to explain why it should not be directed to dismantle the unauthorized multi-storey BGMEA Bhaban. The suo moto rule was issued following a report New Age published on October 2, 2010 under the headline ‘No plan to demolish unauthorized BGMEA building soon.’ In the verdict, the HC said that the unauthorized BGMEA building was constructed on government land flouting the master plan for the development of the capital and several laws relating to protection of its environment and wetlands.

The country’s different trade bodies and business associations have placed a number of recommendations and demands to the government for incorporating those in the national budget for the financial year 2016-17 to be placed in Jatiya Sangsad today. They want that their recommendations and demands will be paid heed with due importance in the budget proposals that are scheduled to be placed by finance minister AMA Muhith in the parliament in the afternoon. Like the previous years, most businesses on various recent occasions have raised some common demands for reduction of corporate tax, multiple value-added tax rates for different sectors and continuation of package VAT system and increase in the ceiling of tax-free individual income. The businesses who are engaged in manufacturing have demanded some benefits for the protection of local industries including imposition of supplementary duty on imported finished goods. The major demands by the trade bodies and business associations are highlighted below:

FBCCI

The Federation of Bangladesh Chambers of Commerce and Industry has demanded introduction of multiple value-added tax rates for different sectors and continuation of package VAT system for small and medium traders instead of implementing a single VAT rate at 15 per cent for all. The country’s apex trade body has demanded income-tax threshold be raised to Tk 3 lakh and consider wider tax cuts to avert tax evasion and capital flight. The apex chamber has proposed Tk 3.25 lakh as the ceiling for women and senior citizens above 65 years, Tk 4 lakh for people with disability and Tk 4.5 lakh for injured freedom fighters. The FBCCI has also demanded 40.5 per cent corporate tax for non-publicly traded banks and financial institutions while 38.5 per cent for publicly traded banks and financial institutions. It has also demanded withdrawal of the provision of excess profit tax in the income tax ordinance. The chamber has recommended 15 per cent VAT on value addition instead of total sales price, increasing VAT-free turnover threshold to Tk 36 lakh and levying 3 per cent turnover tax at production stage for businesses having annual turnover above Tk 36 lakh to Tk 1.5 crore.

DCCI

The Dhaka Chamber of Commerce and Industry has demanded a reduction of the rate of corporate income tax for listed companies to 25 per cent from 27.5 per cent, for merchant banks to 35 per cent from 37.5 per cent and for brokerage houses to 30 per cent from 35 per cent. It has recommended for an increase in tax-free income limit for individual taxpayers to Tk 3.5 lakh from the existing Tk 2.5 lakh considering the augmented cost of living and high inflation in the country. The chamber has urged the National Board of Revenue to take initiative to terminate the source of undisclosed money generation along with discontinuation of legalising scope for untaxed money. The trade body has said that highest rate of corporate tax should be brought down to 35 per cent from the existing 45 per cent considering cost of doing business and inflation. The DCCI has demanded minimum individual income tax be set at Tk 3,000, Tk 2,000 and Tk 1,000 on the basis of locations of the taxpayers.

MCCI

The Metropolitan Chamber of Commerce and Industry has demanded a cut in corporate income tax rate and increase in tax-free income ceiling for individual taxpayers. The trade body has demanded a reduction of the highest income tax rate for individual taxpayers to 25 per cent from the existing 30 per cent. It has also said tax-free income threshold for female and citizens above 65 years old should be Tk 3.3 lakh, for people with disability to Tk 3.85 lakh and for war-wounded freedom freighters to Tk 4.5 lakh. The chamber has also demanded removing the disparity being faced by domestic industries and reduction of duty in import of basic raw materials and intermediate goods saying the measure will increase competitiveness of domestic industries. The MCCI has demanded a reduction in the maximum rate of individual income tax to 25 per cent from the existing 30 per cent while the DCCI said the rates should be set ranging from 5 per cent to 20 per cent instead of the current 10 per cent to 30 per cent.

BWCCI

The Bangladesh Women Chamber of Commerce and Industry has demanded 4 per cent value-added tax at all stages on business for women entrepreneurs instead of 15 per cent proposed at the new VAT and Supplementary Duty Act. Like the FY16, the trade body has demanded an increase in the threshold of tax-free income for individual women taxpayers to Tk 3.5 lakh from the existing Tk 2.75 lakh. The chamber has also sought reduction of trade licence fees, increasing the ceiling of VAT-free turnover to Tk 50 lakh, an increase in cash incentive on potato exports, reduction of customs duties on import of paper for printing industries, removal of harassment in customs houses, and duty waiver on capital machinery import. It has recommended continuation of Tk 100 crore as grant in the proposed budget for the development of women entrepreneurship and allocation of 15 per cent from the equity and entrepreneurship fund of Bangladesh Bank.

BGMEA

The Bangladesh Garment Manufacturers and Exporters Association has demanded continuation of the income tax at source on export at the rate of 0.30 per cent for the next five years. The BGMEA has demanded full import duty waiver on fire-fighting equipment for all types of factories including the export-oriented ones in the proposed budget to help ensure the safety of workers and assets. The association has sought permission for duty-free import of fire proof colour coating used in pre-fabricated building materials for running remediation and retrofitting of RMG factories. The apparel exporters have demanded the facility of special tax calculation at the reduced rate of 10 per cent for RMG exporters that the NBR withdrew in June 2014 be revived for the next five years, introducing normal tax calculation at 35 per cent for the sector.

BKMEA

The Bangladesh Knitwear Manufacturers and Exporters Association has demanded duty-free import of fire preventing and energy saving machinery for all export oriented sector and exemption from VAT on different services including laboratory test, consultancy, compliance audit, legal consultancy, CSR-related, building construction and courier service charges. The BKMEA has requested the revenue board to impose export tax on cost of cutting and making of apparel products instead of freight on board prices. It has also demanded the sector be exempted from paying 1 per cent duty on capital machinery import.

BTMA

The Bangladesh Textile Mills Association has demanded withdrawal of the minimum tax, which is now 0.50 per cent of the annual turnover, for the primary textile sector, and the sector be exempted from paying 1 per cent duty on capital machinery import. The BTMA has demanded tax holiday facility for new investment in spinning, weaving and other factories under primary textile sector to encourage more investment in the sector.

BGAPMEA

The Bangladesh Garments Accessories and Packaging Manufacturers and Exporters Association has urged the revenue board to authorise the association to give utilisation permission that will allow its member firms to avail duty-free imports of raw materials.

FICCI

The Foreign Investors’ Chamber of Commerce and Industry has demanded rationalising the corporate income tax structure for non-publicly traded companies in the budget proposals to promote industrialisation and attract more foreign investment to the country. It has proposed to reduce corporate income tax rate for non-listed companies by 10 per cent to 15 per cent to minimise the gap between the marginal and the effective tax rate. The FICCI has also sought an increase in tax-free income threshold to Tk 3 lakh from existing Tk 2.5 lakh for individual taxpayers, and a reduction of the highest slab of income tax rate for individuals to 25 per cent from 30 per cent.

DSE

The Dhaka Stock Exchange has demanded an increase of tax-free dividend income limit up to Tk 1 lakh from existing Tk 25 thousand with a view to spurring market condition. The DSE has proposed to reduce turnover tax to 0.015 per cent from 0.05 per cent in the upcoming fiscal year in a bid to reduce transaction cost for encouraging investors in participating on the trading and for increasing overall turnover of the stock exchanges. The Dhaka bourse has demanded a gap of 10 per cent income tax between listed companies and non-listed companies and a reduction of merchant banks tax rate equal to trading rights entitlement certificate holders from the next fiscal year.

REHAB

The Real Estate and Housing Association of Bangladesh has demanded absolute indemnity for investment of undisclosed money in the housing sector for the next 10 financial years. The REHAB has demanded that the registration cost of land and flats including fees and value-added tax be lowered to 4 per cent from 14 per cent of the investment and a minimal registration fee be set for the secondary market to increase the cash inflow in the sector. It has demanded a re-financing facility for 30 to 35 years at a single-digit interest rate. The REHAB has also demanded withdrawal of customs duties on import of fire extinguishers and other instruments for residential and commercial buildings.

BARVIDA

The Bangladesh Reconditioned Vehicles Importers and Dealers Association has demanded a special duty benefit in import of used hybrid cars and year-wise depreciation benefit at higher rates on import of used cars from the next fiscal year. It has demanded 25 per cent depreciation facility for one-year-old cars, 35 per cent for cars up to 2 years old, 45 per cent for cars up to 3 years old, 50 per cent depreciation for up cars up to 4 years old and 55 per cent depreciation facility for used cars up to 5 years old. The BARVIDA has demanded a restructure of a slab to bring the cars with 1501cc to 2500cc under the duty structure. It has also recommended withdrawal of supplementary duty on import of microbus to facilitate public transport in the country.

AMTOB

The Association of Mobile Telecom Operators of Bangladesh has demanded withdrawal of VAT on internet use and modem sales and withdrawal of the Tk 100 SIM tax and Tk 100 SIM replacement tax as well.

BCWMA

The Bangladesh Ceramic Wares Manufacturers Association has demanded a withdrawal of supplementary duty on locally-made ceramic tiles and an increase in SD on imported finished goods to give more protection to the domestic industry so that the sector can grow further. The BCWMA has also demanded reduction of customs duty to 5 per cent from existing 10 per cent on import of different raw materials for ceramic making including crude mica, talc, calcium carbonate, potash soap, silk screen, etc.

BAPI

The Bangladesh Association of Pharmaceuticals Industries has demanded withdrawal of customs duties and VAT on import of raw materials for manufacturing anticancer medicines arguing that the import of anticancer medicines enjoyed VAT and duty-free facility. The BAPI has also sought a reduction in customs duties on import of specialised racks used in preservation of medicines and pharmaceutical laboratory furniture to ensure the quality of medicines in line with international standards.