Soaring costs, policy shifts to deter investments: Businesses

Highlights: 

• The economy lacks the capacity to absorb the shock created by accepting all the conditions set by the IMF within such a short period
• The money whitening provision has been strongly criticised 
• There is no predictability of various fiscal policy measures 
• The revenue authority was advised to reduce the import tax on non-processed food to a rational level to curb inflation

Businesses have voiced concerns regarding policy shifts, such as rising bank interest rates, ongoing depreciation of the taka, unusual increases in gas and electricity prices, reductions in tax incentives for economic zones, and higher import duties, all of which they believe will discourage investment in the country.

"In a factory, the gas bill was Tk2 crore. Suddenly, one morning I found I had to pay Tk4 crore – Tk24 crore per annum. A factory cannot generate a profit of Tk24 crore a year," said Shams Mahmud, a leading textile and readymade garment entrepreneur in the country, during a post-budget discussion at the National Press Club in the city today (13 June).

"The interest rate of 9% went up to 15%. Amid devaluation, the taka's rate was once increased by 0.5% against the dollar. Then, in one move, it was devalued by Tk7, which equals Tk117 against every dollar. There is no predictability."

"If this continues, new investment will not arrive," he added. "Now I have to spend from my capital. How will investment arrive if things continue like this?"

Shams, who is also managing director of Shasha Denims and a director of the Bangladesh Garment Manufacturers and Exporters Association, said, "Suddenly, tax benefits have been revoked in economic zones, and import duties were imposed."

He noted that a 200-400% penalty for inadvertently using an incorrect HS code on imports has been legally enforced in this budget, adding that investment will be deterred by these issues.

Referring to IMF prescriptions, he said the economy lacks the capacity to absorb the shock created by accepting all the conditions within such a short period.

He strongly criticised the provision allowing undisclosed money to be legalised.

In his remarks, Ashraf Ahmed, president of the Dhaka Chamber of Commerce and Industry, stated, "I receive encouragement from the political leadership of the government, but I do not receive the same treatment at the field level."

Highlighting the issue of harassment of traders due to the complexity of the HS code, he stated, "There is no problem with the government's intention and direction; the problem lies in the implementation phase."

Research and Policy Integration for Development (RAPID) organised the programme, titled "Discussion on the Proposed National Budget for FY2024-25".

Prime Minister's Economic Affairs Advisor Mashiur Rahman suggested that the revenue authority reduce the import tax on non-processed food to a rational level to curb inflation.

He explained, "Non-processed food items are generally not subject to import tax so that they can be delivered to people at fair prices. Any import tax on non-processed food items, if applicable, should be removed or reduced to a reasonable level."

Binayak Sen, director general of the Bangladesh Institute of Development Studies, also emphasised the need to reduce import taxes on essential items such as poultry, fisheries, and livestock.

He questioned, "The primary driver of high inflation is the surge in food prices, but why is food inflation increasing? Is it due to the market structure or the tariff structure? The cause remains mysterious here."

In the proposed budget, the government has reduced source tax on approximately 28 types of essential items at the supply stage following the prime minister's instructions to the National Board of Revenue. However, import tariffs have been imposed on certain essential, unprocessed items, like rice and onions.

In a keynote presentation on the proposed budget, MA Razzaque, chairman of RAPID, remarked, "Bangladesh's poor policy decisions are compounded by bad luck."

Explaining the term "bad luck," he noted that global demand for Bangladesh's primary export, ready-made garments, is declining. Additionally, remittances through formal channels are stagnant, and the financial accounts are in a negative balance due to lower investment and other issues.

He underscored the need for Bangladesh to pursue free trade agreements with specific countries in order to maintain export competitiveness, citing high import tariff barriers as a significant obstacle.

The economist added, "Currently, Bangladesh's average import tariff protection is about 28%, which is the highest in the world."