Key takeaways from Bangladesh’s FY23 budget

The Russia-Ukraine war and its repercussions amid recovery from the coronavirus pandemic have forced governments to revise their previous plans and Bangladesh is no exception.

The Sheikh Hasina administration unveiled its budget for the fiscal year 2022-23 on Thursday, proposing a range of changes that are expected to tackle the effects of the global crisis.

Last year, Finance Minister AHM Mustafa Kamal grappled with the task of striking a balance between protecting public health and livelihoods amid a raging pandemic.

This time he faces the challenges of keeping prices of daily necessities down amid volatility on the international market as people suffer heavily from skyrocketing living costs.

Here are some key points of his plan:

1. The government has rolled out a Tk 6.78 trillion spending plan, equivalent to 15.23 percent of the national GDP and 14.24 percent higher than the revised outlay for FY22.

2. It has set a 7.5 percent GDP growth target for the new fiscal year, banking on strong "domestic and external demand" to drive economic growth in the medium term.

Spurred by a record GDP growth of 8.15 percent in FY19, the finance minister had again set a target of 8.2 percent GDP growth for fiscal 2019-20 but the number had to be revised down to 6.1 percent as the economy went through a turbulent phase. The country only achieved 3.45 percent growth that year.

The growth rate increased to 6.94 percent in the fiscal 2020-2021 and after riding out another wave of the pandemic, the GDP target was increased to 7.2 percent for the ongoing year.

3. It is targeting an average inflation rate of 5.6 percent in the coming fiscal year. According to the budget proposal, the government is refraining from adjusting domestic prices of chemical fertiliser, gas and power in order to stave off inflation.

4. Kamal has proposed enacting a new provision to the income tax ordinance to offer Bangladeshis scope to legalise unreported offshore assets without facing any questions from authorities.

The minister proposed a 15 percent tax on immovable property located abroad, and a 10 percent tax on movable property if it is not brought back to the country. He also proposed 7 percent tax on remittances coming into Bangladesh. The privilege will remain in effect from July 2022 to June 2023.

5. After a deviation of two years due to the coronavirus pandemic, the government has geared up to get back on track with development by designing the budget with a massive deficit, planning to raise more than Tk 1 trillion from banks.

6. Kamal has proposed to reduce taxes on export-focused products to make the 'Made in Bangladesh' brand globally competitive. The government plans to introduce a 12 percent tax rate for all general industries exporting goods and services and 10 percent for all green industries exporting goods and services. In 2021-22, the tax rate for the export-oriented RMG sector was set at 12 percent for general factories and 10 percent for green factories.

7. In line with previous budgets, the minister proposed a 2.5 percentage point cut in corporate tax that would put the rate at 27.5 percent in the coming fiscal year. The reduction in the tax, one of the major costs of doing business, will encourage investment and create more job opportunities, Kamal said.

8. The government has allocated Tk 827.45 billion as subsidies for fuel and fertiliser, accounting for 1.9 percent of the GDP in the budget for the financial year 2022-23. The allocation is 23.82 percent more than the revised budget for the current fiscal.

However, considering the price trend of oil, gas, and fertiliser in the international market, the subsidies or incentives spending could be 15 to 20 percent higher than estimated due to the rising prices of commodities globally.

This might pose a challenge in the budget management for the next fiscal year, Kamal added.

9. With infections ebbing in Bangladesh, the government has abolished the concessional facility for importing coronavirus testing kits, special types of masks and hand sanitisers.

10. It has increased the allocation for the education sector in the national budget by 13.20 percent to Tk 814.49 billion. Nut it remains almost unchanged for another year in proportion to the total size of the budget, despite the setbacks faced by the sector due to the coronavirus pandemic.

11. The government is withdrawing a 5 percent advance tax on the import of gold. The move aims to encourage the import of the precious metal through legal channels and deter gold smuggling in Bangladesh.

12. Kamal said domestic computer manufacturers are facing uneven competition as laptop computer imports are still now subject to a VAT exemption. He proposed a 15 percent VAT on the import of the device, which will essentially make imported laptops costlier. The total tax incidence on the product will be 31 percent.