Diversifying SME industries could help export competitiveness: AmCham

The American Chamber of Commerce in Bangladesh (AmCham) has recommended policy reforms and increased funding to expand these SMEs and diversify the industries to enhance export competitiveness.

AmCham made the statement in response to the proposed FY2024-25 budget presented by Finance Minister Abul Hassan Mahmood Ali today (6 June).

Bangladesh currently has 7.9 million SMEs, which significantly contribute to the export GDP, comprising 37.56% in the previous fiscal year.

AmCham also recommended revising individuals' tax-free income limit in response to rising inflation.

AmCham suggest that diverse policies in individual tax rates, exemptions, deductions, and credits affect different taxpayers based on their income levels, types of income sources, and other individual circumstances.

AmCham also mentioned that the budget formulation and implementation should be handled by separate entities to maintain the sanctity and address the key challenges that include declining foreign exchange reserves, the balance of payment deficit, energy sector demand-supply imbalances and the struggling banking sector. We also believe the central bank must work together with the government and policymakers to implement effective measures to control inflation and a stable macro economy.

Regarding the Tax and VAT Policy, Amcham is concerned that The National Board of Revenue (NBR) proposes a 15% standard VAT rate for the fiscal year 2024-25, potentially impacting imported goods. It's crucial to regulate this to exempt essential products. Foreign investors would be affected as turnover tax and SD increased in a few sectors.

The organisation said that the sudden reductions in existing duty and tax facilities by imposing 1% duty on capital machinery, parts, etc imported in EPZs and high-tech parks could prompt foreign investors to reconsider their commitments, undermining their confidence and that of local investors.

In the context of Foreign Exchange Reserve, AmCham refers to Bangladesh Bank introducing a crawling peg exchange rate system. We hope it will help stabilize the exchange rate, manage inflation, enhancing export competitiveness, and increasing remittance flow. Offshore banking units should introduce FC term/fixed deposit products to attract people to invest through banking channels. Additionally, accelerating foreign-funded projects and focusing primarily on own-funded projects may elevate pressure on the Foreign Exchange Reserves.

"We should focus more on demographic dividend by developing potential human capital ensuring quality STEM and Vocational education to enhance remittance by sending skilled manpower overseas. As Bangladesh glides through a rapidly evolving global phenomenon, strategic & effective policies supported by adaptability are crucial to encourage technology transfer and the creation of high-value products and services, making Bangladesh a prominent business hub with seamless transition fostering sustainable economic development." the statement said.

AmCham's praise for extending the tax holiday for Bangladesh's ICT sector is poised to attract investors and fuel further growth. The Tax system, while becoming progressive, needs automation by leveraging technology and data-driven approaches to enhance efficiency and transparency.

About reducing Per Capita Liability, AmCham said, "Bangladesh's debt-to-GDP ratio has steadily increased over the past few years. We recommend adopting prudent debt management strategies that promote accountability and fiscal discipline.

"The entity expects expedited implementation of the policy so as to reap competitive advantage during the post LDC period."

It believes budget execution is what matters in the end and should be measured for quantity and quality.