Lean more on foreign sources instead of local banks to meet budget deficit: FBCCI to govt

The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), the country's apex trade body, has urged the government to reduce its reliance on domestic bank borrowing and instead seek low-cost and carefully managed foreign financing to bridge the upcoming fiscal year's budget deficit.

In a written statement issued today (4 June), the FBCCI emphasised that excessive borrowing from the local banking system will hamper the flow of credit to the private sector, which could have adverse effects on investment and employment generation.

"The deficit in the proposed budget is Tk2.26 lakh crore, which is 3.6% of GDP. To meet the deficit, the government will have to borrow Tk1.25 lakh crore from domestic sources. The government will have to pay a total of Tk1.22 lakh crore in interest, including Tk1 lakh crore for domestic interest payments and Tk22,00 crore for foreign interest payments," FBCCI said in the statement.

"Excessive government borrowing from the banking system hinders the flow of credit to the private sector. As a result, there may be an adverse impact on investment and employment. To meet the budget deficit, attention can be paid to financing from foreign sources at the lowest possible interest rates and with caution, instead of the local banking system," it added.

The FBCCI also underscored the need for improved efficiency, transparency, and accountability in implementing the proposed budget, which outlines a revenue collection target of Tk5.64 lakh crore – 9.0% of the GDP.

The National Board of Revenue (NBR) is expected to collect Tk4.99 lakh crore out of the stated target, while the remaining Tk65,0000 crore is to come from non-NBR sources.

The FBCCI commended the government for moving away from a high-end budget and making efforts to formulate an implementable budget and set targets with caution.

The government has proposed a Tk7.90 lakh crore budget for FY2025-26, down by Tk70,000 crore from the previous fiscal year. The GDP growth target has been set at 5.25% and an inflation target of 6.5%.

Additionally, the FBCCI lauded the reduction of the corporate tax rate from 22.5% to 20% for publicly listed companies that have transferred more than 10% of their paid-up capital through IPOs and conduct income-expenditure transactions via bank transfers.

However, it suggested relaxing some of the conditions to make the benefits more inclusive.

On the proposed VAT hike on online products, the trade body said, "The VAT rate on commission on online product sales has been increased from 5% to 15%. This will harm small entrepreneurs. Since e-commerce plays a role in digital inclusion, we request that the proposal to increase the VAT rate in the interest of expanding the sector be withdrawn."

The trade body also opposed the hike in the minimum tax on gross receipts from 0.6% to 1%, warning that it would raise the effective tax burden on businesses.

It recommended to maintain the previous 0.6% rate to ease compliance for businesses.