How local industries react to FY24 budget

The proposed budget for the 2023-24 fiscal year has presented a breathing space for the local industries with the continuation of tax facilities for one to two more years but business leaders are not viewing the budget in general as business-friendly.

Taxes or duties on imports of raw materials in some sectors were increased which will affect the prices of some products and these sectors will not get a capacity boost, they said.

Several sectors including home appliances, aluminium products, cement, and mobile phones have been paying value-added tax (VAT) at a reduced rate (5% instead of the regular 15%).

According to the proposed budget, these sectors now have to pay a bit higher (7.5%) VAT but will continue to enjoy the reduced rate facility for one to two years.

But the gains tax on the sale of land and flats has been doubled in the budget. Apart from this, the import duty of about 12 items related to several industries including cement, stone, tiles, elevator, ceramic, glass, switch-socket, cable, and kitchenware has been increased.

Shamim Ahmed, president of the Bangladesh Plastic Goods Manufacturers and Exporters Association, told The Business Standard (TBS), "Consumers had the opportunity to get some products at cheaper prices due to the facilities offered by the government. But now if prices of some products go up due to higher import duty, consumers will reduce purchases and our industry will be affected."

Economists and those related to the revenue sector, however, say that the initiative to reduce protection has been taken so that the local industry can gain competitiveness. 

A senior VAT official of the National Board of Revenue (NBR), on condition of anonymity, told TBS that many sectors have been benefiting from the reduced VAT facilities for a long time. It is time for them to build up their capability. That is why the VAT benefits for certain sectors have been reduced."

Through this budget, a message has been given that their protection may decrease further and they have to acquire their own capacity, he added.

Economist Dr Ahsan H Mansur thinks that through this initiative, local industries will start preparing to face the post-LDC challenges.

The existing reduced VAT facility on the import of raw materials for soap and shampoo was scheduled to expire this year, which was proposed to be extended by one year in the budget.

The period of VAT benefit has been proposed to extend from one to three years for products such as refrigerators, freezers, sanitary napkins and diapers, handmade biscuits and cakes, raw materials for making several medicines, jute or waste for making recycled fibres of spinning mills, animal feed raw material coconut copra waste.

This list also includes several home appliances including blenders, juicers, pressure cookers, washing machines, microwave ovens, and electric ovens. 

Zaved Akhtar, the CEO of Unilever Bangladesh Limited, the largest company of such items in Bangladesh, told TBS, "If this facility was cancelled, the prices of these products might have increased. Continuation will not affect the market."

Some industries will be badly affected

Gains tax on the sale of land and flats has been doubled in the budget. As a result, the housing sector and related industries will be affected, said insiders.

Alamgir Shamsul Alamin (Kajal), the president of the Real Estate and Housing Association of Bangladesh (REHAB), expressed the fear of adverse effects on the economy as a result of the gains tax increase. 

In response to the proposed budget, he said, "The prices of land and flats have increased already due to the increase in the price of construction materials and other reasons. We fear that the new tax increase at this moment will have an adverse effect on this sector and on the country's economy."

Besides, the prices of plastic utensils, hygienic and toiletries, kitchen utensils, aluminium utensils, sanitaryware, sunglasses, cement, and mobile phones will increase due to the slight increase in the VAT rate (from 5% to 7.5%).

Bangladesh Cement Manufacturers Association (BCMA), in its budget response, said that the price of cement will increase by Tk15 per bag due to the increase in the import duty of cement raw materials.

According to the organisation, "Due to the dollar crisis, cement clinker imports have decreased by more than half compared to the normal period. Imposing an additional duty on raw materials in such a crisis will put the sector in more peril."

Mohammad Shahidullah, vice president of the BCMA, told TBS, "It is beneficial for the industry and the consumer if the duty is kept low. Among the 12 countries in Southeast Asia, there is no country where taxes are as high as ours at the cement production and marketing level."

Rupali Chowdhury, the managing director of Berger Paints Bangladesh Limited, told TBS, "It is not the right time to hike taxes as almost every business is now passing a very hard time and are incurring losses in the current economic situation."