Economist Zahid Hussain sees export, corporate tax cuts as surprises in 2022-23 budget

Economist Zahid Hussain says slashing tax rates for other export-focused products like clothes and corporate companies to 12 percent is the biggest surprise in the proposed budget for the 2022-23 fiscal year.

The existing tax rate for the export-focused RMG sector stands at 12 percent for general factories and 10 percent for green factories.

In the budget for the next fiscal year announced on Thursday, Finance Minister AHM Mustafa Kamal introduced a 12 percent tax rate for all other general industries exporting goods and services, and 10 percent for all other green industries exporting goods and services.

The World Bank's former lead economist at Dhaka office identified cuts in tax at source on raw materials and in corporate tax rate by 2.5 percent to be the other surprises in the draft budget.

He thinks reducing the corporate tax rate by 2.5 percent for three straight years has brought it to a reasonable level and "will have a positive impact on investment”.

Pointing to the 23.82 percent increase in subsidies for power and fertiliser in the proposed budget, he said, “Without this, the inflation would have risen further and put more pressure on the public.”

He stressed the importance of fertiliser subsidies. “There is a worry about a possible global food crisis. Amid such anxiety, agriculture subsidies will certainly boost food production in the country.”

Zahid criticised the lack of discussion on resolving the dollar crisis in the budget session.

Additional duty has been imposed on four products to reduce import spending but these are mainly used by middle-income groups. Even if imports drop by a bit, inflation will rise, he said.

The government could have been strict in cutting current expenditure and reducing needless spending to relieve pressure on both imports and the dollar, he said.

“But I didn’t see any move to cut these expenditures. On the whole, it's an incomplete budget filled with potential,” he said.

He thinks implementing the social support programme will be challenging. “Allocation of Tk 1.13 trillion [in the proposed budget] is huge, regardless this is only a 5 percent increase over the last budget.”

Delivering this to the beneficiaries corruption-free and on time is and was always a challenge, he said.

In his words, achieving the revenue target will be another huge challenge. “The [draft budget] does little in terms of moving to boost revenue other than speaking of tax return submissions.”

The economist thinks the budget lacks guidance on how to meet the massive growth target.