Business leaders have welcomed the proposed budget for continuation of the package VAT system, but criticised withdrawal of the supplementary duty on the import of 1,200 products as the move will discourage the thriving local industries and fail to lure new investors.
Over the last couple of months, the business community has been demanding a continuation of the package value added tax system, as they reckoned that implementation of the new VAT law would hamper their businesses.
The government responded positively to their demands, although the amount of proposed VAT was doubled, which will eventually still be a lesser burden on them.
“The budget is business and investment friendly as the government proposed to reduce the duty on import of several raw materials,” said Abdul Matlub Ahmad, president of Federation of Bangladesh Chambers of Commerce and Industry.
Ahmad said continuation of the package VAT, although doubled, will especially help the small and medium enterprises.
“If we evaluate that the supplementary duty waiver on import of 1,200 products hurts certain industries, we will suggest the government to re-impose the supplementary duty, to protect the local industries,” said Ahmad.
However, Hossain Khaled, president of Dhaka Chamber of Commerce and Industry, said there is no financial or policy incentives to attract new investment or encourage expansion of existing capacities.
As a result, businesses would not come up with new investment at the expected level, which is needed to generate more jobs in the country, he said.
“If the government wants new investment, it should propose financial incentives for the potential investors,” Khaled added.
Although the government has proposed a reduction of corporate taxes for the garments sector, the same facility was not proposed for other export oriented sectors, he said.
The DCCI chief bitterly criticised the proposed withdrawal of the supplementary duty as it would discourage the domestic industries, as a majority of those goods are produced locally as well.
He hailed some measures in the proposal, like financial incentives for jute and jute goods, real estate and garments.
Khaled said allocation of 26.5 percent of the total annual development programme for human resource development is a good move, as the country needs skilled manpower for economic development.
He also welcomed continuation of the package VAT system, although the amount has been doubled.
“We need quality education. I hope the government would be careful about ensuring the quality of education, as it has allocated a substantial amount of money in the budget,” said Khaled.
Siddiqur Rahman, president of Bangladesh Garment Manufacturers and Exporters Association, also welcomed the proposed VAT system.
But he urged the government to reinstate the source tax at 0.3 percent, as exporters are now paying 0.6 percent.
Instead of reducing the source tax, the budget rather proposed to increase the source tax to 1.5 percent.
Any increase in source tax would only hurt the garments sector as profitability from apparel exports has been declining, he said.
The apparel exporters want the previous 10 percent corporate tax to be reinstated, to reduce the cost of production and attract higher investment.
“We want the corporate tax rate for the export-oriented garment sector at 10 percent, which was effective till 2014,” he said.
Mahbubul Alam, president of Chittagong Chamber of Commerce and Industry, is pleased as the government proposed a substantial amount of money to make infrastructural improvements in Chittagong.
In particular, construction of the more than 16-kilometre elevated expressway in Chittagong would give new impetus to economic activities at the commercial capital of the country.
Alam also supported reduction of the corporate tax in the sector to 10 percent.
Asif Ibrahim, chairman of Business Initiative Leading Development (BUILD), the body for policy reform for the private sector through consultation, thinks the higher budgetary allocation in electricity, transport, mega infrastructure projects and support for women participation in the economy are positive.
Businesses will be benefitted from delayed implementation of the proposed VAT Act from July 2017, he added.
“Reform initiatives will need to be given the highest priority if current macroeconomic stability is to be translated into a journey along a higher growth trajectory,” he added.