Businesses feel cold winds

Bangladesh's business community is visibly unhappy with the proposed FY26 national budget, deeming it out of sync with current economic realities. At a time when investment has slumped to a decade low and imports are declining, industry leaders had hoped for bold incentives to restore confidence. Instead, they face a raft of measures that not only ignore their long-standing demands but also threaten to deepen existing pressures.

One of the sharpest impacts stems from the increase in turnover tax – from 0.60% to 1%. This minimum tax, payable regardless of profit, adds a significant burden on businesses already grappling with tight margins, high borrowing costs, and global demand shocks. Entrepreneurs are calling it punitive, especially for sectors struggling to stay afloat rather than thrive.

The garments industry, Bangladesh's export lifeline, feels particularly bruised. At a moment when the global apparel market is undergoing a painful correction and US tariffs have increased, the imposition of VAT on cotton and man-made fibre (MMF) yarns feels like rubbing salt into a wound. The sector had anticipated relief; instead, it received new costs.

A broader concern echoes through corporate hallways: an over-reliance on a narrow pool of existing taxpayers, with little initiative to expand the tax net. Meanwhile, the middle class is being squeezed yet again. With increased indirect taxes and limited relief, disposable income is set to shrink, a worrying sign for consumption-driven growth, and in turn, factory output and employment.

All talks and no plans

Businesses contend that, despite all its talk of discipline and reform, the FY26 budget appears to have overlooked a fundamental question: how does it stimulate private sector growth amidst global and domestic uncertainty?

The Metropolitan Chamber of Commerce and Industry (MCCI), a premier trade body, expressed deep concern about the current investment climate in its reaction to the proposed budget. The MCCI stated that the budget does not adequately address how to revitalise investment, especially given its decade-low levels, which have dropped to 29.38% of GDP in FY2024-25.

"This stagnation in investment has led to reduced employment opportunities and an increase in the number of people living in poverty. A weakening investment environment, exacerbated by factors such as official complexities and inadequate infrastructure, has intensified the economic crisis," the chamber highlighted in a statement.

'Trade and industry ignored'

Azam J Chowdhury, chairman of East Coast Group, criticised the proposed budget for overlooking the needs of trade and industry. "Private sector investment has declined, and the high cost of money is stifling growth and blocking new employment opportunities," said Chowdhury, whose diverse business interests span power generation, petroleum, shipping, and more.

He noted that the budget offers no meaningful policy support to encourage new investment or job creation. Tariffs on raw material imports remain high, compounded by currency volatility, while no steps have been taken to rationalise duties.

"No specific industrial sector has been identified as a priority for investment," he said, adding that government borrowing from banks risks pushing credit costs even higher, potentially crowding out productive private investment.

'Following IMF dicta'

Anwar-ul-Alam Chowdhury (Pervez), president of the Bangladesh Chamber of Industries (BCI), suggested that the budget seems structured according to the IMF's formula. "But if we strictly follow IMF prescriptions, our industries will suffer."

He argued that costs are already high due to elevated energy prices, steep bank loan interest rates, and inadequate energy supply. Even industries managing to remain competitive now face increased duties and taxes.

"VAT on cotton and man-made fibre yarn has been increased from Tk3 to Tk5 per kg at the production stage. Amid the current energy crisis, this increase will hurt domestic spinning mills and push the textile sector towards greater reliance on imported yarn," he noted.

Chowdhury also highlighted that for the steel industry, duties on raw materials have been set at 15-25%, while for cement, VAT on raw materials has risen from 5% to 15% – all of which will drive up costs in the housing and construction sectors.

The Foreign Investors' Chamber of Commerce and Industry (FICCI) welcomed several positive provisions in the FY2025-26 budget but raised critical concerns that could hinder business growth.

A major concern is the 7.5% additional corporate tax on listed companies with less than 10% public shareholding, which FICCI called discriminatory. It also criticised the withdrawal of reduced tax rates for bank-transacted business, warning this move undermines efforts to build a cashless economy.

FICCI also expressed concern over the increased VAT on online sales from 5% to 15%, stating it could stifle e-commerce growth.

Additionally, changes to the tax structure may disproportionately burden middle-income salaried earners, despite modest increases in the tax-exempt threshold. The 7.5% advance tax on importers, while simplifying settlements, could raise costs where value addition is low, FICCI added, noting that delayed rebate/refund timelines affect working capital and business agility.

According to the Dhaka Chamber of Commerce and Industry (DCCI), the proposed budget for FY26 lacks clear directives on investment expansion, ease of doing business, and reforms in the CMSMEs and banking sectors, which may hinder efforts to create a fully conducive environment for business and investment growth.

DCCI President Taskeen Ahmed shared the chamber's reaction hours after the budget announcement. Taskeen said while the budget includes some positive measures such as inflation control, adjustments to the minimum tax, broader scopes for allowable deductions, and the introduction of an automated return system, it falls short in offering a comprehensive roadmap for business growth and investment facilitation.

Abul Kashem Khan, chairperson of Business Initiative Leading Development (BUILD), presented a mix of acknowledgements and critical concerns about the FY2025-26 budget. His key concerns revolve around tax inconsistencies, inefficiencies in budget execution, and barriers to doing business, especially for exporters and online entrepreneurs.

"New taxes on cotton and man-made fibres contradict the policy objective of export diversification. These taxes could undermine export competitiveness, especially when BUILD has long advocated for making exports more competitive," said Khan.

VAT on cotton and MMF strongly criticised

Sharif Zahir, Chairman of UCB and Managing Director of Ananta Apparels, strongly criticised the increase in VAT on cotton and man-made fibre yarns from Tk3 to Tk5 per kg. "The industry is already grappling with declining global demand, energy insecurity, and US tariff hikes. It needs relief, not burden," said Zahir.

LDC graduation planning missing

Shams Mahmud, President of the Bangladesh-Thailand Chamber of Commerce and Industry, expressed several critical concerns about the FY2025-26 budget. His key issues revolve around the neglect of private sector priorities, adverse tax policies, and the lack of strategic planning ahead of Bangladesh's LDC graduation. Non-tax issues that significantly impact business and investment remain largely unaddressed in the budget.

Improved logistics sought

Syed Ershad Ahmed, President of the American Chamber of Commerce in Bangladesh (AmCham), acknowledged efforts to improve the tax framework but cautioned that foreign investment would remain elusive without improvements in law and order. He also pointed to inefficiencies in customs procedures, noting that it still takes up to 17 signatures to clear goods. Additionally, he stressed the urgent need for development in the logistics sector to support smoother trade and investment flows.