CPD spots concerns about exports over Trump’s tariff policy

The think tank recommends increasing the annual tax-free income limit from Tk 350,000 to Tk 400,000

CPD Distinguished Fellow Mustafizur Rahman has ruled out the possibility of creating opportunities for Bangladesh's exports as US President Donald Trump has adopted the policy of imposing additional tariffs after coming to power for the second time.

Instead, Mustafizur raised fears that the country's export opportunities would be "limited and stagnant".

While speaking at a media briefing over the recommendations for the next fiscal year at the Centre for Policy Dialogue, or CPD’s, office in Dhanmondi, the private think tank fellow said: "The global 'tariff war' that he [Trump] has started could have a negative impact on global growth.

“There is a risk of falling in the United States and there could be a negative impact on demand.

"So the scope of ‘our’ exports is limited and there is a risk of stagnation which is not desirable at all.”

He highlighted the experience of imposing a 25 percent tariff on Chinese-made garments after Trump first came to power in 2016.

At that time, there was no information about the expansion of trade in Bangladesh, rather Bangladesh's exports to the US market had decreased.

It has increased again this year, Mustafizur said, adding: "I don't think it will be of any direct benefit to us."

Explaining this, the economist said that 93 percent of Bangladesh's ready-made garments are exported to the US market.

The Chinese readymade garments on which 35 percent duty has been imposed, are mainly synthetic fabrics and non-cotton. But Bangladesh’s fabrics are entirely cotton.

He said Bangladesh is not China’s competitor in the products on which the US has imposed tariffs.

Mustafizur added that the undergarments' diversity in ready-made clothes should be kept in mind.

As a second reason, he said: “Many economists are saying that this kind of 'tariff war' will have a negative impact on global growth. This will have a negative impact on the US growth as well.

"The demand of the general people will decrease, and it will cause a rise in inflation in the United States. This will lower their demand for imports.

“As a result, countries like ours who are exporting, the demand in the US market will also be negatively affected."

RECOMMENDATION FOR TK 400,000 TAX-FREE INCOME THRESHOLD

The CPD recommended raising the annual tax-free income threshold for individual taxpayers to Tk 400,000 from the existing Tk 350,000.

The research agency came up with the recommendation as the people’s purchasing power has dropped in view of the current inflation.

CPD Executive Director Fahmida Khatun presented the budget recommendations for the fiscal year 2025-26.

At present, individual taxpayers are taxed at 5, 10, 15, 20, and 25 percent. In the last budget, the maximum tax rate was 30 percent, but later it was reduced to 25 percent.

The CPD has advised raising it to 30 percent on the question of fairness.

Regarding other proposals, she said: "The interim government will prepare the budget amid a challenging macro-economy.

“The government has inherited economic crises including high inflation, stagnation in revenue collection, and a liquidity crisis in the banking sector. Revenue growth is almost impossible.

“The budget for fiscal year 2025-26 is being prepared at a time when Bangladesh is facing economic challenges. There is a need for a comprehensive and coordinated strategy to deal with it.

“Monetary policy stability is one of the functions of policymakers. To achieve this, it is necessary to control inflation, stabilise the exchange rate, and ensure financial discipline."

In her words, "The fiscal deficit at the end of the fiscal year could reach Tk 1.5 trillion. Inflation was on an upward trend from July last year to February this year. The general inflation in urban and rural areas was above 9 percent. Prices have been falling this month. But if the gas price proposal is approved, the situation will be worse.

"Considering the global tariff war, the inflation trend, we fear that the Bangladesh Bank's claim to bring it down to 7 or 8 percent by June this year is unlikely to be achieved in reality."

Noting that “the principle should be to carry out macroeconomic management effectively in the current situation", Fahmida said: "To do that, stability should be maintained by controlling high inflation, stabilising foreign exchange reserves, and increasing the capacity of the revenue system. The budget needs to be prepared keeping in mind the issues of LDC graduation."

Highlighting the CPD's budget recommendations, she said: "The tariff rates of 60 products should be brought down to the prescribed limit so that the trade balance is maintained and we can withhold the shock of LDC graduation. To help the export agents one has to think of other additional support."

The CPD has proposed reforms in the National Board of Revenue, or NBR, on the budget recommendation.

These reforms include the creation of a modern revenue structure, digitisation, creating a harmonised tax policy, and hassle-free taxation.