Businesses concerned over government's budget plan to borrow heavily from banks

The top trade body says the decision might restrict access to credit for traders

Bangladesh's top trade body has raised concerns over the government’s plan to borrow Tk 1.37 trillion from banks in the budget proposed for the fiscal year 2024-25, highlighting potential difficulties for traders.

The Federation of Bangladesh Chambers of Commerce and Industry, or FBCCI, said the decision may create an obstacle for traders in case of taking bank loans. It suggested that the government consider international loans to meet its budgetary needs.

“The deficit in this year’s budget is set at Tk 2.56 trillion, with plans to source approximately Tk 1.37 trillion from domestic banks. We believe this amount is substantial,” said Mahbubul Alam, president of the trade organisation, in his immediate response to the budget at the FBCCI headquarters in Dhaka’s Motijheel on Thursday.

"It might restrict access to credit for traders, causing us considerable hardship. Borrowing from international sources could be a more favourable option for the government," he added.

Announcing the budget in parliament on Thursday, Finance Minister Abul Hassan Mahmood Ali outlined plans to finance over 17 percent of the budget deficit through domestic banks.

As Bangladesh stands on the verge of becoming a developing country amid multi-faceted economic pressure, the total outlay is set at Tk 7.97 trillion for for the fiscal year 2024-25.

It which marks a 4.6 percent increase from the previous year—a rise Mahbubul described as "logical, pragmatic, and implementable."

"Over the past four to five years, the budget size has typically increased by 10 to 12 percent annually. However, this year we've seen a smaller increase of 4.6 percent," he noted.

The FBCCI chief also emphasised combined efforts to manage inflation which has been a critical concern.

The government aims to keep general inflation at 6.5 percent, while recent figures from the Bangladesh Bureau of Statistics show an average rate of 9.73 percent in the 11 months of the ongoing fiscal year until May, higher than in many years.

The rate is piling pressure on low-income people to manage their everyday cost of living.

Former finance minister AHM Mustafa Kamal had declared to keep this one of the main indexes of the economy at 6 percent in the outgoing 2023-24 fiscal year. The rate was revised down to 7.7 percent later but the government has not been able to achieve that target either.

The FBCCI president called for an increase in the tax-free income threshold from Tk 350,000 to Tk 450,000, aiming to alleviate the tax burden on citizens.

The budget also proposes new tax brackets, adjusting the percentages and thresholds for higher income levels to better reflect current economic conditions.

According to the proposal, people will pay no tax on income up to Tk 350,000. A five percent tax has been proposed when the income exceeds TK 100,000 than the threshold.

Earlier, taxpayers had to pay 10 percent tax when their income was Tk 300,000 more than the Tk 400,000 threshold. Now, they will have to pay the tax at the same rate when their income is Tk 450,000 more than the Tk 400,000 threshold.

In the next phase, the taxpayers have to pay 15 percent tax when their income is Tk 500,000 more than the Tk 850,000 threshold. Now, people have to pay 15 percent tax when their income is Tk 400,000 more than the Tk 750,000 threshold.

According to the budget for FY24, the taxpayers have to pay 20 percent tax when their income exceeds Tk 1150,000 threshold. Any income above the threshold charges 25 percent tax.

Mahbubul reiterated FBCCI’s proposals to eliminate advance income tax (AIT) and advance tax (AT) under the VAT Act, which are intended to boost the export market. “We made two proposals to abolish AIT and AIT. I again propose that they be withdrawn."