Favourable policy by the government, loans with reduced interest rates and subsidy have helped mitigate last year's Covid-19 shock.
All the economic indicators are painting a positive picture. Bangladesh's GDP growth was 5.24% in the fiscal year 2019-20. The forex reserves stood at $43.43 billion until March this year, and remittances reached $18.6 billion until the first week of May of this fiscal year.
More than 75% of the Tk40,000 crore meant for large-scale enterprises, 72% of Tk20,000 crore for cottage, micro, small and medium enterprises (CMSME), and around 70% of Tk 5,000 crore agriculture refinancing scheme have already been disbursed so that businesses can overcome the impacts of the first wave of Covid-19.
The pandemic is not over yet and we do not know what the new normal will be like for us.
We propose that advance income tax and advance tax should be phased out in the next two years, as we did last year. There are many other ways to increase tax revenue.
Enforcing bank-to-bank transactions at the dealer/ retailer/ distributor level will increase tax coverage and tax to GDP ratio.
The upcoming budget should abolish all hidden charges in the banking sector. I would request the authority to consider issuing alternative credit ratings to widen access to loans.
I would also propose a 1% cash incentive for the banks that have been actively disbursing stimulus packages.
The banking business model needs revisiting. The services should be made available at the sub-district, union, and ward levels.
CMSMEs should be able to access collateral-free credit. To this end, the Bangladesh Bank has already started a credit risk guarantee scheme. Additionally, insurance should be more accessible, and we suggest a business insurance scheme by the government to support agriculture and CMSMEs.
We also need to explore a bank-to-bank payment system similar to the back-to-back letter of credit (LC) trade facilitation tools for all industries from CMSME, agriculture, manufacturing, services to ICT sectors.
That will bring the informal economy that accounts for 84% of the employed population within the formal channel.
Last year, corporate tax was reduced from 35% to 32.5%. We suggest lowering the tax rate further using a scientific methodology so that after the country's graduation from the Least Developed Country status, we could offset the loss (7-9%) from International Support Measures (ISM) in export earnings.
Moreover, enlisted companies' tax rates should be reduced from 25% following opportunity cost and cost-benefit analyses.
Overall, the corporate tax rate should be brought down to the minimum level after an opportunity cost assessment and a cost-benefit analysis to attract more investment and create employment.
Lockdown is not a sustainable measure to combat the contagion and we have seen that across the world. The health care management system should be the priority amid the Covid situation.
Separate business mapping is required for dairy products, beauty salons, restaurants, hotels and resorts, retail businesses, CMSMEs and agriculture shops from metropolitan cities, upazila to ward level.
It will help us quantify Gross Domestic Product, grant disbursement and achieve the required technical assistance and SDG targets in the five-year transition period before LDC graduation. We propose a special fund for this mapping.
If the pandemic continues to sweep across the country, small and medium businesses would be in trouble
We propose disbursement of a stimulus package, maximum 50% of which will be given as grants, to the agriculture and CMSME sectors. The large industries and export sector could be given 5% in grant of the stimulus package.
From the Federation of Bangladesh Chambers of Commerce and Industries, we also propose enlisting alternative industries, product-based diversification, and value chain upgradation in new sectors, such as food production and processing industries, ceramics, refrigerators, light engineering, waste management, recycling, etc. under Section 46BB of the Income Tax Ordinance 1984 that grants special incentives for industry diversification and value chain upgradation.
We hope the budget for fiscal 2021-2022 has been formulated in continuation of the previous budget, keeping in mind Vision 2021, Vision 2041, SDG 2030, the 8th Five-Year-Plan and the ongoing second wave of the pandemic.
[Sheikh Fazle Fahim is the immediate past president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI). He spoke to Morshed Noman of The Business Standard.]