"The government set a target to take the private sector investment to 25.3 percent of GDP in the next fiscal year from 12.7 percent in the revised budget of the current fiscal year. Achieving the investment target is uncertain when financing is in the highest order of a haphazard situation"
When the country is going through a serious demand depression amid a substantial income loss in the private sector, Finance Minister AHM Mustafa Kamal rides on black money to increase money flow to the economy in a bid to bring back business activities on track.
At the same time, private companies – the most affected industries during the pandemic – got a special attention in the proposed budget as the finance minister came up with a set of incentives, including a reduction in corporate tax by 2.5 percent to facilitate small businesses.
To facilitate exporters, source tax has been reduced to 0.5 percent from existing one percent in the proposed budget.
The government has taken a number of measures to promote local industries. Local manufacturers of mobile phone sets will continue to enjoy a 5-percent reduced VAT rate for another year.
Mustafa Kamal also proposed cutting the duty rate of three raw materials imported by the footwear industry. Local electronics industry will continue to enjoy concessionary duty.
Steel industry, plastic and packaging, paper manufacturing and LPG cylinder making have also been offered tax benefits.
Agriculture machineries will benefit from the VAT exemption. Local ICT sector will have to pay only five percent VAT, instead of 15 percent now, for production of some components.
However, getting finance from banks is still a challenge for small businesses as high bank borrowing may keep the private sector dry.
The government set a target to take the private sector investment to 25.3 percent of GDP in the next fiscal year from 12.7 percent in the revised budget of the current fiscal year.
Achieving the investment target is uncertain when financing is in the highest order of a haphazard situation, said Debapriya Bhattacharya, distinguished fellow of Centre for Policy Dialogue (CPD) – a private think tank.
Addressing financing issues, the finance minister put more emphasis on building an effective bond market to help the private sector get low-cost finance.
For the bond market, the new budget offered various incentives, including withholding tax deduction on the commission to increase transactions of bond in the secondary market.
Addressing the stimulus packages, AHM Mustafa Kamal, in his budget speech, said: "We are creating loan facilities through commercial banks at subsidised interest rates for the affected industries and businesses so that they can revive their economic activities and maintain competitiveness at home and abroad."
After all those efforts, financing is still a question because the implementation of the stimulus packages is uncertain. Small and medium enterprises (SMEs), in particular, are facing difficulties in getting loans under a stimulus package of Tk20,000 crore.
"The stimulus packages will be operated through the banking sector, which itself, as we know, is in crisis," said Dr Selim Raihan, executive director of SANEM (South Asian Network on Economic Modelling).
In a budget reaction, he said the banking sector is mired in mismanagement, institutional weaknesses and default loans. The budget should have had a guideline for the operation of the stimulus packages through such a crisis-ridden banking sector.
"I believe there should have been a guideline for ministries, the Bangladesh Bank, and other banks as well in this regard. We are also hearing about various difficulties the SMEs are facing to access to their Tk20,000 crore stimulus package through the banks."
The CPD in its recent report on stimulus analysis said financial stimulus packages failed to revitalise domestic economic activities and ensure employment for workers, because banks were unwilling to disburse loans to small businesses on account of inadequate funds and the obligation to follow various conditions.
Abul Kashem Khan, former president of the Dhaka Chamber of Commerce and Industry, welcomes the cut in corporate tax, saying it would help consolidate companies' bottom-line.
Access to finance and ease of doing business are still a concern, especially in the case of new investments in industries.