How effective the proposed budget in generating new opportunities?

The investment landscape in Bangladesh differs significantly from that of its neighboring countries, including India, Pakistan, and Sri Lanka. In those nations, many first-generation entrepreneurs possess the capability to initiate new investments using their personal savings, without the need for bank loans. Conversely, among the prominent business figures in Bangladesh who have risen to prominence since independence, none have pursued new investments solely through their own savings. Even if some possess the financial means, they tend to embark on new ventures by securing substantial bank loans, largely due to the intricate tax framework.

Furthermore, when a business is established with bank financing, the interest on such loans constitutes a considerable portion of the operational expenses of the new enterprise.

Another significant opportunity for Bangladesh lies in foreign direct investment (FDI). According to data from UNCTAD, the total foreign direct investment up to 2019 was approximately 1,800 million US dollars. However, this figure has since declined to around 1,700 million. The lowest point was recorded at the end of 2024, when it fell to 1,270 million US dollars. A primary factor contributing to this decline was the government's policy allowing foreign investors to borrow from local banks. At that time, a foreign company investing Tk100 could borrow up to Tk50 in return. Under the previous interim government, this ratio was adjusted to 60:40, meaning that a foreign company investing Tk100 was permitted to borrow up to Tk60 from a local bank. This opportunity remains in place.

When foreign companies are granted the ability to borrow from local banks, it naturally leads to a reduction in overall foreign investment. Simultaneously, the borrowing opportunities for domestic investors become more limited, as banks exhibit a greater inclination to lend to foreign entities. For instance, foreign companies operating in the telecommunications sector are afforded the chance to borrow from local banks, resulting in a continued decline in foreign investment within this sector.

As reported by various media sources, the total Foreign Direct Investment (FDI) in the telecommunications sector from 2006 to 2022 amounted to 217.65 million dollars. However, due to a significant withdrawal of investments, the total FDI in this sector diminished to merely $1.3264 billion by the conclusion of 2023. This indicates that approximately $850 million in foreign investment exited the telecom sector within a single year, representing around 39 percent of the total accumulated investment.

By June 2024, the telecommunications sector accounted for only 7.2 percent of the overall FDI stock. This sector was once the leading recipient of FDI in the country. Consequently, as nearly all nations worldwide prioritize the development of local capabilities in telecommunications and information technology under the 'digital sovereignty' policy, the investment prospects for local investors have become more constrained than ever before.

Furthermore, each year, a portion of the national budget reflects the government's borrowing from the banking sector. For instance, the borrowing target from the banking sector for the financial year 2024-25 was set at Tk99,000 crore. In the subsequent financial year 2025-26, this target increased to Tk1,04,000 crore. The proposed budget for the fiscal year 2026-27 has established a target of Tk112,000 crore. Notably, the government tends to borrow more than the targets outlined in the national budget. For example, in the fiscal year 2025-26, while the target was Tk104,000 crore, the actual borrowing reached Tk122,000 crore.

When the government engages in substantial borrowing from the banking sector, the availability of loans for local investors naturally diminishes. This leads local entrepreneurs to scale back their creation and investment activities. When banks extend loans to the government, they are assured of timely repayment with interest, which discourages local entrepreneurs from seeking loans. In this context, it is challenging to characterize the proposed budget for the fiscal year 2026-27 as being directly conducive to local 'new investment'.

Although in some cases, existing businessmen will benefit from tax cuts. This is certainly a positive aspect.

This marks the inaugural budget of the BNP government after a span of twenty years. It is also the first budget under Prime Minister Tarique Rahman and the initial budget presented by Finance Minister Amir Khasru Mahmud Chowdhury. Consequently, it is evident that the government's popularity has seen an uptick due to the reduction of tax rates in certain instances.

A significant revelation for the telecommunications sector was the proposal to entirely eliminate the existing Tk300 tax on mobile SIM cards. This decision concluded a policy debate that had persisted for nearly two decades. The Finance Minister indicated in his budget address that the current tax rate in the telecom sector stands at approximately 50 percent, while in the information technology sector, it is around 25 percent, both of which are considerably higher than those in other nations. To facilitate the swift advancement of the sector and improve access to mobile services, a gradual reduction of the tax rate to a more reasonable level has been proposed.

Nevertheless, in contrast to the Finance Minister's assertions, the burden of a 15 percent VAT, a 15 percent supplementary duty, and a 1 percent surcharge on customer recharges remains unchanged. Thus, while acquiring a SIM card has become less expensive, the costs associated with calls and data usage remain as burdensome as before.

In the current context, the proposed budget does not reflect any specific targets or policies aimed at expanding broadband internet. There is a lack of new prospects for those engaged in the development of local clouds, data centers, and for investors interested in private submarine cables.

Nonetheless, there is a suggestion to lower the withholding tax rate in the mobile network service industry from 12 percent to 10 percent. This adjustment is expected to somewhat decrease the operating expenses for operators and may yield positive effects for consumers in the future.

Withholding source tax is not classified as profit; it is calculated based on turnover. Consequently, even in the event of a loss, this tax must still be remitted. Thus, the initiative to lessen the tax burden by two percent will provide some relief.

The proposal for a startup fund of Tk500 crore aimed at fostering new entrepreneurs in the IT sector is rather inadequate. Allocating only Tk500 crore for startups within a budget of Tk938,000 crore is, in many ways, disheartening. A minimum allocation of Tk5000 crore would be more appropriate, as the advancement of Bangladesh's standing in the global market will hinge on the innovations and entrepreneurial efforts emerging from the IT sector.

It is clear that Bangladesh lags significantly behind its neighboring countries, such as India, Pakistan, and Sri Lanka, in the IT sector. Nepal has also outpaced us in this regard. Given this context, the 'startup' sector holds considerable importance for our development. However, we must exercise caution to prevent the recurrence of the dubious activities surrounding startup funding that have been observed recently. The pattern of launching an e-commerce venture, securing a loan, allocating minimal funds to the business, and diverting the majority of the money elsewhere must not be repeated.

No e-commerce initiative established under the guise of startups has managed to endure. We have witnessed numerous instances of platforms on Facebook, branded as 'F-Commerce', vanishing along with both small and large investments. Conversely, genuine innovators have been overlooked by the policymakers within the IT sector. The anticipated success from this 'startup stunt' during the implementation of Digital Bangladesh under the Awami League administration has not materialized. There is a concern that while government officials and administrative personnel may change, the individuals engaging in such deceptive practices will reemerge in new forms.

Consequently, exercising caution regarding startup funds is crucial. The Finance Minister has suggested several tax exemptions aimed at lowering the production costs of domestically manufactured mobile phones, which is a positive development. During the pre-budget discussions, the Finance Minister indicated that the current incentives for mobile phone, computer, electronics, and digital component production would be extended until 2030.

As the domestic handset industry faces challenges from the grey market and a decline in demand, this assurance of policy stability will aid in attracting both domestic and foreign investments in this sector. Nevertheless, the government must adopt a more pragmatic approach in the implementation of the NEIR.

Previously, the BTRC did not adhere to internationally recognized methods in executing the NEIR, leading to a significant crisis. An internationally proven and accepted methodology is readily available, making it feasible to establish a NEIR framework accordingly.

In summary, the budget can be viewed as the beginning of a new trajectory for the telecommunications and information technology sector. It is anticipated that this initiation will further expand the realm of opportunities.

Rased Mehedi, Telecommunication and Information Technology Sector Analyst, Editor, Views Bangladesh