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18 June 2024

Business Insider Bangladesh

FICCI lauds reforms in budget, urges for policy support to attract new FDI

BI Desk || BusinessInsider

Published: 01:16, 11 June 2024  
FICCI lauds reforms in budget, urges for policy support to attract new FDI

Photo: Collected

Foreign Investors' Chamber of Commerce and Industry (FICCI) appreciated the proposed national budget for FY25, aimed at supporting the economy amidst challenges.

With a budget size of Tk 7,97,000 crore, constituting 14.2 percent of GDP, the government targets 6.75 percent GDP growth and 6.5 percent inflation for 2024-2025.

FICCI sees these targets as ambitious, but achievable with an effective execution plan. The proposed reforms, especially in Income Tax and Customs aim to enhance revenue, reduce deficits, and enhance investor confidence.

These observations were made by Zaved Akhtar, president of the FICCI, at a post-budget press meet held today at a city hotel, reports BSS.

The chamber welcomed a few proposals as presented in the Finance Bill, but expressed concerns over the extra duty and tax imposed on telecom, carbonated beverages water purifiers as the increased tax for manufacturers poses a crucial challenge to the profitability and viability of these businesses and will hamper attracting potential foreign direct investment (FDI).

FICCI is also expected to focus on financial sector reform, critical for a strong and resilient financial system.

Stakeholders, including FICCI, highlight Bangladesh's low revenue-to-GDP ratio, urging the need for improvement.

According to Household Income and Expenditure Survey (HIES), 10 percent of the population contributes to 40 percent of national income, but according to the National Board of Revenue (NBR), Bangladesh has only 10 million registered taxpayers, still a far cry from bringing people within the tax net.

While the government works towards this, results are awaited, FICCI suggested innovative approaches, such as sector-wise revenue analysis and increasing the taxpayer base.

FICCI also welcomed the acceptance of their proposed amendments in the Finance Bill 2024, particularly the prospective tax rate, fulfilling a long-standing demand from the business community. Maintaining these rates will enable businesses to plan and invest effectively.

Additionally, FICCI expressed gratitude for the acceptance of their proposed amendment simplifying tax deduction at source for industrial raw materials.

The extension of time for monthly withholding tax return submission is also crucial, accepted through the Finance Bill 2024.

FICCI appreciated tax reforms in the proposed 2024-2025 budget to simplify the tax system. But, high Effective Tax Rates (ETR) remain a key concern for the industry.

While they appreciated the 15 percent income tax rate for private funds, they note concerns about exempting public funds from taxation, creating disparities between government and private sector employees.

Projections indicate an expected GDP growth rise by +93 basis points and a decrease in inflation by +150 basis points.

Detailed implications of deficit financing, such as potential higher interest rates and the need for a balanced approach to ensure fiscal stability, are crucial.

The removal of incentives from private EZs and high-tech park while keeping incentives for government EZs may erode investor confidence, it said.

The FICCI said NBR has proposed an increase in the personal income tax rate while this measure may be seen as unfair by regular taxpayers and could inadvertently encourage tax evasion.

Such changes in tax slab will discourage compliant taxpayers as they are being penalized for their hard-earned, also making this retrospective is against NBR's current policy of predictive tax culture hence recommended to restate last year's rate to be applicable for FY 2024-25.

The principle of reducing tax rates while widening the tax net aims to create a fairer and more efficient tax system. This encourages compliance, increases taxpayers, boosts economic growth, ensures fairer tax distribution, and simplifies tax administration, leading to more stable and predictable tax revenue.

The FICCI raised concerns about the achievability of the revenue collection target as the NBR aims to achieve Taka 4,80,000 crore revenue, 60 percent of the proposed budget.

The proposed budget lacks allocation or guidance for automating Tax, VAT, and customs administration, which would simplify tax collection and enhance efficiency, it noted.

Without these reforms, VAT credit complexities and financial strain on businesses may persist. Changes in TDS compliance, like including entities above Taka 10 crore under withholding authority, are crucial.

Initiatives for digital tax integration aim to simplify and increase transparency in the tax process. These reforms, such as merging the three wings of NBR (Income Tax, VAT & Customs), separating the collection Department from the Policy Department, and implementing the National Single Window (NSW) project, will help enforce the law properly.

These reforms are necessary to streamline Tax & VAT processes, reduce administrative burdens, improve productivity, and encourage compliance to support economic growth.