Budget FY26: Ficci says some positive steps, flags concerns impacting business, investment climate

The Foreign Investors Chamber of Commerce and Industry (Ficci) has welcomed many changes in the proposed budget for fiscal year 2025-26 (FY26), but said it was worried about some provisions which could potentially harm businesses. 

In an immediate reaction to the budget proposals presented to the country by Finance Adviser Salehuddin Ahmed today (2 June), the trade body said, "We have thoroughly reviewed the Finance Ordinance 2025. While we acknowledge certain positive aspects, we also have significant concerns regarding several provisions that could potentially impede business growth and increase the burden on compliant taxpayers."

On the positive side, it noted that the ordinance demonstrates a commitment to easing the burden on specific sectors and promoting a more predictable tax system, according to a press statement.

"The reduction of the source tax for construction companies and essential goods is a pragmatic move that will offer good relief to these vital industries. Furthermore, the non-consideration of dividends received from a Joint Venture by a JV partner for tax purposes is a sensible approach, avoiding double taxation on profits already taxed at the JV level.

"We also commend the alignment with international best practices by ensuring the prevalence of the Double Taxation Avoidance Agreement over the Income Tax Act 2023," it also said.

Ficci, however, noted that the ordinance is not without its contentious points.

"A significant concern lies with publicly traded companies that have less than 10% of their shares issued through an IPO, as they are slated to face an additional 7.5% corporate tax. The impact of this tax at a significantly increased rate appears to be discriminatory," it said.

The major trade body further said it was equally concerning that the benefit of a reduced tax rate that was available for companies for transactions conducted through banking channels has also been withdrawn. "This is a counter-productive measure to the nation's efforts to establish a cashless society and places Bangladesh at a disadvantage compared to economies like Vietnam and Indonesia."

Another concerning aspect, as per Ficci, is the impact on salaried taxpayers. "While the increase in the tax-exempt income threshold at the entry level is a positive step, the overall changes introduced in the tax structure are likely to impose an additional burden on middle-income earners when viewed in totality," it states.

The new 7.5% advance tax (AT) on commercial importers—with no further VAT if local value addition is under 50%—simplifies settlement and reduces refund claims but this might escalate the cost if value addition is lower.

Extending the rebate and refund period from four to six months will also benefit businesses navigating working capital constraints, said Ficci.

"VAT on online sales has been raised from 5% to 15%, which will make it difficult for the online business industry to survive and will make it even harder to expand business further. Maintenance of sales and purchase records digitally through ERP systems without the requirement of preserving hard copies is a good progress towards digitisation," it notes.

Several amendments have been proposed to make the Customs Act, 2023 more modern and effective. Duty structure has been aligned with trade goals and tariff restructuring. Numerous HS codes are revised, merged, or created to facilitate classification.

New HS codes have been introduced for better product tracking. Additionally, penalties for violations of import control regulations and errors in cargo declarations have been reduced, which will simplify the import process.

The proposed budget for the 2025-26 fiscal year amounts to a total expenditure of Tk7.9 lakh crore, which is 12.7% of GDP. This includes a proposed allocation of Tk5.6 lakh crore for operating and other sectors, and Tk2.3 lakh crore for development programmes. The revenue target is set at Tk5.64 lakh crore, accounting for 9% of GDP.

The budget deficit of Tk2.26 lakh crore (3.6% of GDP) is planned to be financed through domestic and foreign sources.

Significant allocations have been made for education, health, agriculture, and social programs, including Tk35,403 crore for primary and mass education, Tk47,563 crore for secondary and higher education, Tk41,908 crore for health, and Tk39,620 crore for the agriculture sector.

Additionally, a proposed allocation of Tk5,040 crore has been made for the Public-Private Partnership fund in the 2025-26 fiscal year to encourage investment projects through government-private partnerships, which we believe will play a supportive role in increasing foreign investment.