Written by Akhlaqur Rahman Sachee & Susmita Bhatta

Finance Minister AHM Mustafa Kamal unveiled the country’s 51st national budget for the financial year 2022–23 on 9th June at Jatiya Sangsad with a special focus on economic recovery from uncertainties caused by the COVID-19 pandemic and the Russia-Ukraine war. It also acknowledges the pressure on people to pay for the skyrocketing living costs when they have just stood up to resume normal lives following a pandemic. So, several plans have been addressed in the proposed budget for FY2022-23 that take into account these factors, such as setting the target inflation to 5.6% on an average by addressing supply and demand imbalances; diversifying export-oriented industries, increasing remittance income; addressing the issue of the devaluation of the Taka against the US dollar; improving necessary infrastructure to attract local and foreign investment, stimulus package to backwards-linkage industries; expediting revenue collection through automation process; prioritising employment generation, making business easier by reducing corporate tax; and so on. These proposals portray that the national budget for this fiscal year highly favours the interests of business entities so that the country’s economic growth can be accelerated.

The national budget for the ongoing fiscal year 2022-23, is worth BDT 6.78 trillion, with a target GDP growth rate of 7.5%. The target for the previous year was 7.20%. The revised budget for the previous year, BDT 5.93 trillion, is 14.25% lower than this year’s budget. The government has set a target for revenue collection of BDT 4.33 trillion with a budget deficit of BDT 2.42 trillion, including grants, which is 5.40% of GDP.

Overview of National Budget FY2022-23

Revenue Mobilisation

An additional BDT 44,079 crore in revenues and foreign grants has been targeted in FY2022–23, representing an 11.24% increase from the FY2021–22 revised budget. The total revenues and foreign grant mobilisation target is BDT 436,271 crore, of which tax revenues make up 89.61% of total revenues (excluding foreign grants) of BDT 433,000 crore and non-tax revenues make up 10.39%. BDT 3.70 trillion in tax revenues from NBR, or 54.57% of the total budget, has been projected for FY2022–23. This increased 12.12% from the previous fiscal year’s revised budget. Only 2.65% of the proposed budget for FY2022–23, 12.50% more than FY2021–22, will come from non-NBR tax revenues. 21.58% of the total budget will come from domestic borrowings, a 17.74% rise from the previous financial year. With an increase of only 2.47%, the target for foreign grants in FY2022-23 is only BDT 3,271 crore. Around BDT 95,458 crore or 14.08% of the total budget will be borrowed from abroad, which is nearly 23.94% more than the revised budget of the previous fiscal year.

Value Added Tax (VAT) will constitute the largest share of tax revenues from NBR, which is around 38.16%. Following that, income tax will contribute 32.71%, the second largest chunk of the NBR’s overall target for tax revenues. Supplementary and import duties will each contribute 15.82% and 11.89% of the NBR taxes collected, respectively.

Expenditure Framework

The proposed budget for FY2022-23 sets the total expenditures of BDT 6.78 trillion, a 14.25% increase from the revised budget for the prior fiscal year. According to the aforementioned graph, public service, education and technology, and transport and communication will make up the highest total expenditures, at 32.61%, 14.74%, and 12.02%, respectively. The allocation has increased by 18.72%, 13.94%, and 23.74% in respective sectors compared to the budget of the prior fiscal year. In addition, 6.21% has been allotted for the agriculture sector, which has seen a 20.41% increase, and 11.85% has been allocated for interest payment, which has experienced a 12.82% increase in comparison to FY2021-22. The allocation of 5.44% of expenditures to the health sector has increased by 14.22%. The lowest allocation of 0.60% is for industrial and economic services, and there is a massive decrease of 10.28% in comparison to the previous fiscal year.

From a different perspective, BDT 4.18 trillion, or 61.71% of total expenditures, is earmarked for operating expenditures, and another BDT 2.60 trillion, or 38.29%, has been set for the development expenditures, which is 5.83% of GDP. This proposed development expenditure is 16.97% higher than the revised budget for FY2021-22. The five sectors mentioned above have been allocated 77.30% of the total development expenditures allocation. Among them, the transportation and communication sectors have been assigned the highest allocation of 27.0% of total development expenditures. Moreover, education and technology received 18.6% of ADP in FY2022-23, which was 19.7% in FY2021-22, and health received 7.2% of ADP in FY2022-23, up slightly from 6.6% in FY2021-22.

Key Growth-Oriented Budgetary Measures

Some of the key measures to accelerate growth in the pandemic stricken economy have been stated below.

• To accelerate the recovery process to bring back the economy to the pre-pandemic level, stimulus programs will be continued in FY2022-23.
• To support the growth of domestic industries, raw material import duties have been eliminated for refrigerator makers until 2025. LPG producers will also continue to pay a VAT of 5%.
• Since the COVID-19 outbreak severely impacted Bangladesh’s tourism industry, the industry will get BDT 1,000 crore as an incentive.
• Until 2025, textile millers will pay a 15% corporate tax rate, enhancing their ability to compete globally. Additionally, this proposal has been included to promote backward linkages in the apparel industry, which is export-oriented.
• Any business enterprise in the SME sector owned by a female entrepreneur with an annual turnover of up to BDT 70 lakhs is now tax-free.
• A 10-year tax break has been offered for business owners and startups engaged in producing baby food, agricultural machinery, dairy and dairy products, fruits, and vegetables.
• The corporate tax rate decreased for listed firms from 22.5% to 20%, non-listed corporations from 30% to 27.5%, and one-person businesses from 25% to 22.5%. Reducing the tax, one of the major costs of doing business, will promote investment and increase the number of job possibilities.
• To encourage export diversification, all export oriented industries will benefit from a lower tax rate, much like RMG industries. Therefore, the tax rate will be 12% for all other general sectors exporting products and services and 10% for all other green industries.
• To reduce the tax burden on businesspeople and foster a business-friendly environment, the source tax on raw materials has been reduced from 7% to 4%.
• A tax of 5% has been imposed on both the AC and non-AC restaurant sectors, as opposed to 10% for AC restaurants and 5% for non-AC.
• To encourage service exports as a possible source of foreign currency for Bangladesh, foreign exchange earnings from ocean-going vessels flying the Bangladeshi flag will not be taxed until 2030, if they are brought into Bangladesh through banking channels.
• Startups will enjoy the new planned budget to carry over nine years of consecutive losses. The turnover tax rate, previously only 0.6%, has now been further reduced to 0.1%, enabling new business owners to explore and discover their potential.
• Sugar, puffed rice, steel, pet chips, active medicinal components made locally, imports of raw materials for polypropylene staple fibre, and power tiller production are exempted from tax.
• 15% VAT on laptops and computers means a 31% overall tax burden on the imported products. To achieve the goal of exporting digital devices, the concession on the import of printers and toner cartridges was removed.

The Remaining Issues and Challenges

There are several issues and challenges with the proposed national budget for FY2022-23.

The first issue is the inflation that occurred by global supply chain disruptions due to post-pandemic complications and the war between Russia and Ukraine. It has become harder to transact since SWIFT was shut down in Russia. Additionally, it has become more difficult to import goods (oil, gas, energy, wheat, fertilizer) from Russia and Ukraine because shipping to Bangladesh has also halted. The price is rising as a result, and it is anticipated to increase much further.

Secondly, maintaining stability in the exchange rate of the taka and keeping foreign exchange reserves at a comfortable level is a challenge in the next fiscal year’s budget management since a global price hike caused by the Russia-Ukraine war has disrupted trade. Businesses now need more taka to purchase US dollars for importing goods.

Thirdly, Russia provides 90% of the estimated cost as loan assistance to Bangladesh for constructing the mega project of the Rooppur Nuclear Power Plant. If the war continues and Russia stops providing financial aid to Bangladesh due to the closure of the SWIFT network, there will be a deficit in the foreign loan that will impact the total proposed revenue target. Thus, it can be an issue when income is not increasing at the rate of expenditures. So, Bangladesh has to look for an alternative payment network, which could be a challenge for the fiscal year. Moreover, Europe is Bangladesh’s main export region for export earnings, as Bangladesh makes 54% of its total exports to Europe. The RMG industry, along with other sectors, will be deprived of a massive portion of export earnings if the war spreads all over Europe. As a result, target tax revenues will not be achieved. So, it is another issue, as the government has eyes heavily on developing local export-oriented industries to incur tax revenue from export earnings and offset the economic damage caused by the pandemic.

Fourthly, Sylhet and Sunamganj were hit by one of the worst floods in the history of Bangladesh in June, 2022. Millions of people were affected by this flood. To tackle the situation, the prime minister allocated BDT 1.20 crore to a special fund. The country experienced a devastating flood right at the moment of the announcement of the national budget. Due to the flood, around 75,000 hectares of paddy have been damaged. Bangladesh is prone to these kinds of natural disasters, which can slow growth and make it hard to stick to the budget.

Challenges will always be there in the way of the implementation of such a growth-oriented budget. It becomes more difficult when the economy is already pandemic-stricken, and the entire world is going through one of the most challenging times in the history of mankind. However, business-friendly budgetary measures, high ambition for growth, measures to control inflation and exchange rates, and initiatives to protect local industries and boost exports will surely help the economy recover from the shocks caused by the pandemic and the ongoing global challenges.