The Metropolitan Chamber of Commerce and Industry (MCCI) advocated for reforming tax policy while giving their budget reaction on Thursday (9 June).
"The chamber thinks that there is ample scope for reforming the tax policy, increasing the capacity of tax administration, and providing proper public services. MCCI has always suggested meaningful structural changes in the tax administration so that it could aptly carry out revenue collection," reads a press release
"In the existing infrastructure, many eligible organisations with high earnings remain outside the purview of tax, while Individuals/businesses regularly paying taxes are burdened with more and more taxes. This needs to be addressed properly," the PR added.
MCCI congratulated Finance Minister AHM Mustafa Kamal for proposing his 4th budget at the parliament under challenging circumstances.
The chamber advised the government to adhere to proper and effective financial management to limit expenditure on the financing of government projects in order to keep the budget deficit in check.
MCCI called for government measures to keep prices of energy, food, fertilisers, under control in the upcoming financial year.
"The government should not hesitate to increase the deficit if it is required for essential expenditure, infusing funds into the economy and raising aggregate domestic demand. It must look beyond the banking sector for financing this deficit," the press release stated.
MCCI urged the authorities to explore possibility of low-cost international funding and tighten financial management by stopping unnecessary over-spending, wastage, and other leakage of funds will yield a significant amount of savings.
In order to ensure this, resources should be allocated to the government agencies tasked with the monitoring and evaluation of public expenditure and project delivery, the chamber proposed.
MCCI thanked the government for focusing on inflation containment, agriculture and overall food security, human resource development, including health, education, and skills development, boost in domestic investment, increase in exports, and promotion of export diversification, and job creation and rural development.
MCCI believes that Bangladesh can be turned into an export powerhouse by improving its business competitiveness and trade regime. It said that Bangladesh needs to lay adequate and meaningful emphasis to diversify export in terms of products and markets and bringing sustainable reforms measures in export facilitation including technological up-gradation, infrastructure & skills development and institutional strengthening as priority agenda to boost export/
"For technological up-gradation, special low-cost funds should be created in line with 4IR and 8th five years plan enabling export-oriented industries to improve their capacity and efficiency."
"The size of Export Development Fund (EDF) needs to be raised at least up to 10 billion dollars from 7.5 billion dollars and should be accessible to all the exporters," the press release read.
Necessary negotiations can be carried out by the government with the development partners such as IDA, ADB, IFC, as MCCI proposed.
The cost of funds for EDF can be reduced by reducing service charges and profit on the investment by the Bangladesh Bank (BB) and Authorised Dealers (AD), the chamber added.
In the proposed budget, the proposed allocation of social safety nets is Tk1,13,576 crore, which was Tk1,07,614 crore in FY22.
MCCI expressed that it only increased by Tk5,962 crore which was not enough.
So the chamber proposed a significant increase in social safety nets in the final budget.
MCCI believes that the underdeveloped connectivity and infrastructure, weak distribution channels of power, and bureaucratic hurdles remain the major obstacles to economic growth.
Besides, weak revenue collection (only 69 % collected during July-April of FY22) and ADP implementation (only 55.18% could be spent in July-April of FY22) are also causes of concern for the economy.
To ensure macroeconomic stability, the country needs to take cautionary measures in spending foreign currencies, considering the higher import trend and the cascading Russia-Ukraine war fallout, the chamber noted.
"We should control the high subsidies on electricity, gas and fertilisers, otherwise spending as subsidy will shoot up significantly," the preass release read.
MCCI appreciated the lowering of the corporate tax rate by 2.5 % (from 22.5% to 20% for listed companies (those that issue shares worth more than 10% of its paid-up capital through IPO) and from 30% to 27.5% for non-listed ones).
MCCI believes that these consecutive reductions during the last three years (7.5% in total) are the right move towards fulfilling businesses' persistent demand of making the corporate tax rate consistent with the other competing countries in the region.
The Chamber also lauded the government for lowering the tax-deduction-at-source (TDS) rates for the supply of goods and increasing the perquisite threshold.
However, the Chamber suggests reducing the rate of TDS on services such as construction, infrastructure, which generate employment.
MCCI also appreciated the rationalisation of the income tax rates for the export-oriented industries.
TDS for all export-oriented industries has been increased 100% from 0.5% to 1%.
MCCI suggests that this TDS be maintained at the previous level in the current circumstances.
The chamber believes that the imposition of a 5 percent tax at source on gross bill of terminal operation/ship handling, as part of port operations, similar to that on stevedoring/berth operation commission, will increase the cost of doing business. However, MCCI appreciated making research and development expenses allowable.
In consistence with the previous years, MCCI strongly advocated for the removal of the minimum turnover tax in their budget reaction. MCCI proposed adjustments in income tax thresholds and voiced their disappointment that the matter was unaddressed in the budget speech.
MCCI is disappointed to see personal income tax thresholds remaining unaddressed in the budget. We must raise and align the tax-free income thresholds, which we are yet to do. MCCI proposes to make the tax-free income threshold to be at least Tk. 500,000," the pr read. It also suggested keeping a symbolic fund for tax refund amounts from the NBR.
MCCI appreciated allowing central registration for VAT and providing VAT exemption on the supply of goods under subcontract between the manufacturing units when both are enjoying bonded facilities. It also welcomed the reduction of penalty on VAT return submission and lowering of the VAT rates and the minimum value of the items on which VAT is applicable in several sectors (like hotel and restaurant, trading of MS Product).
However, MCCI was disheartened as no remarkable suggestions for the structural reforms of the VAT Law were present in the proposed budget.
The chamber believes that having effective automation (including the interface between Integrated VAT Administration System (IVAS) and Application Programming Interface (API)) will streamline the VAT system.
MCCI appreciated the removal of the reference/minimum value for calculating the customs duty.
The chamber also suggested that custom duties be rationalisfed so that product price and inflation could be kept in check. MCCI welcomed the lowering of import duties for sewage treatment plants (STPs) but proposed this same facility to be extended to effluent treatment plants (ETPs).
MCCI also appreciated the budgetary provision for a study on central bank digital currency as well as exploring the means to introduce digital banks.
"We would also like to see crypto assets being allowed for investments which will create thousands of jobs in the country," the chamber said.
MCCI expressed its deep concerns about allowing indiscriminate opportunity of whitening black money by paying a certain amount of tax.
"In the past, we have seen such opportunities yield little results while unnecessarily raising questions about the probity of our financial and accounting practices. The cost benefit analysis will show a higher cost with almost zero benefits."
"This will seriously discourage the compliant taxpayers, who will consider it penalising," MCCI stated.
CMCI feels that there should be an interim evaluation of the Budget after every three (3) months.
Finance Minister AHM Mustafa Kamal has placed the Tk6,78,064 crore national budget for FY23 at Jatiya Sangsad according to the top priority of safeguarding marginal people from inflation fuelled by the Russia-Ukraine conflict.