Budget 2025–26: Question of sustainability for private investment

The Budget for the fiscal 2025–26, estimated at Tk 7.9 trillion is a contractionary one targeting realistic GDP growth and lower inflation at 8%. The floating exchange rate has been announced considering high foreign exchange reserve at USD 27.4 billion. Budget has given long term projection, sometimes up to 2030 showing optimism for future economic growth. However, the country at the moment is in a transition towards LDC graduation, declining growth in agriculture (from 3.30% to 1.79%), lower investment to GDP ratio (29.38%), SDGs, uncertainty because of Reciprocal tariff by USA, also non-tariff barriers by neighboughring country.

Budget delineated about the introduction of Bangladesh Single Window(BSW) and services being provided by OSS of BIDA. However, Investment Promotion Agencies (IPSs) have not yet been successful in creating confidence among investors. Supportive uninterrupted utility services for which investors can not run their industries in full capacity, the budget even though has mentioned that there will not be any price hike of utilities but not given any security of supply of gas and electricity. High interest rate and unavailability to bank loans, deteriorated law and order situation have been some of the discouraging factors for the investors. Business entrepreneurs waited for a strong commitment in that respect.

Budget has increased advance tax for the commercial importers from 5% to 7.5% which will be a constraints for SME entrepreneurs because most of the SMEs buy their Raw materials from the commercial importers and will have an impact on the produced goods. However announcement of Central Bonded Ware House for the homogenous SME entrepreneurs could be helpful if can be implemented at the soonest possible time. In case of SMEs, audit accounting through IFRS would be difficult which can be revisited.

On the other hand, for e-commerce entrepreneurs VAT has been increased from 5% to 15% on the commission which will be a serious blow specially on budding SME women entrepreneurs, which should be reduced to 5%. Worth to mention that recently through the VAT and SD ordinance 2025, VAT exempted limit has been reduced to BDT 30 lacs from earlier BDT 50 lacs, also turn over tax slab has been lowered from BDT 3 crore to 50 lacs. Start-ups and e-commerce entrepreneur are the future of country, Budget announced Taka 100 crore Start Up Fund which can be raised at least to TK 300 core initially.

While we are trying to attract new investment, the Budget directives are different, at para 113, in order to increase tax-GDP ratio, VAT on Plastic product manufacturing industries has been raised from 7.5% to 15%, VAT on the main raw materials for RMG and Textile such as cotton thread and MMF has been increased which will impact negatively on the industry sector.

A good initiative has been introduced regarding future adjustment of Minimum Tax applicable on Mobile phone, tobacco, beverage (under subsection six of section 163 of ITA 2023), but the provision for 38 heads ( clause 163(2))still remains non-refundable will work as a burden to the private sector. The budget has reduced the SD at import stage on 442 items which are mainly agricultural and livestock products such as bovine of goat or sheep etc. For the local industries the SD on some products have not been reduced. For an example SD on drinking water at 5% is still a barriers for these industries.
Tax Deduction at Source (TDS) on cash subsidy on export proceeds and freight forwarders have been made adjustable which is good initiative, the scope of adjustability should be increased gradually so export can be encouraged.

Perquisite limit as admissible expenses have been increased to TK 2 million from Taka 1 million which is a good initiative will encourage entrepreneurs to calculate their tax liability easily.

The royalty and technical know-how admissible (Finance Ordinance clause 49) limit has been set 6% of yearly turnover or 15% of net profit for a company whichever is lower, as BIDA guideline. This is a complex policy that discourages foreign investors, it needs to be revisited to follow the actual net profit earned by the foreign investors. TDS on Intellectual property based services have been declared as 10% of the turnover which was 12% earlier, we need to connect it with the requirement of LDC graduation.

Customs duty on 110 items has been proposed to be withdrawn, duty on 65 items has been reduced, the list has not been published anywhere and even discussed with the concerned. It should be published soon, and consultation needs to be initiated.

Supplementary duty at the import stage has been withdrawn on 662 products and 100 items have been made duty free following a commitment of government. It is seen from a research of BUILD that out of 7537 HS codes a Total 3447 items are under highest Customs duty band of 25% maintained by Bangladesh Customs. Highest band of CD meaning 25% covers 45.74% of total HS line , in which while 1579 HS line is under Highest duty band which are under Agriculture, Livestock, Poultry (HS chapter 01 to 25). We are not aware about the withdrawal of SD on such a big number, not understand its impact on the local industry while there is scope to reduce highest duty on a number of products which are not imported and consumed such as swine items, live horses, breeding swine etc.

Diminimise value has been increased from Tk. 2000 to Tk. 4000 will help importing samples by the exporters. Minimum/Tariff value on 84 items has been withdrawn which is an improvement towards LDC graduation and TFA implication. With the phasing out of minimum/tariff value those who are sufferers will need some initial assistance to sustain and for this action plan need to be started right now.

The budget has increased the tax free income limit for personal tax payers while at the same time, the budget has withdrawn the 5% slab which will increase the ultimate tax burden and individual fixed income earner will not be able to enjoy the benefits increased tax-free limit.
However, appreciation must be given to the Finance Adviser for a very precise and to the point Budget for the people of the country.

Ferdous Ara Begum: Economist and CEO, Business Initiative Leading Development (BUILD)