The Metropolitan Chamber of Commerce and Industry, Dhaka (MCCI), has said implementing the proposed Tk 7.97-trillion budget in the current macroeconomic climate will be very challenging.
In a budget reaction on Friday, the country's oldest trade body said the National Board of Revenue (NBR) has set an ambitious collection target of Tk 4.80 trillion for the upcoming fiscal year 2024-25 -- 11.63 per cent more compared to the previous year's target of Tk 4.30 trillion.
In FY25, the VAT authorities will have to collect Tk 1.83 trillion, the Income Tax authorities Tk 1.76 trillion and the Customs authorities Tk 1.22 trillion, according to the collection breakdown.
"Implementing the budget in the current context is a very challenging task," said MCCI President Kamran T Rahman in the statement.
The chamber believes that there is still room to improve budget management, reform tax policies, automate the tax system, reduce overall tax collection system losses, strengthen tax administration capacity and deliver better public services for the effective execution of the budget.
MCCI has long called for significant structural reforms in tax administration to improve revenue collection. The chamber noted that under the current system, a considerable number of high-income entities remain outside the tax net.
On the other hand, there is a growing burden on individuals and businesses who already fulfil their tax obligations.
MCCI has urged the authorities to find a solution to this issue.
The statement said the estimated budget deficit for FY25 is Tk 2.56 trillion, which represents 4.6 per cent of GDP. Of this deficit, Tk 951 billion will be financed through external sources, while Tk 1.61 trillion will be sourced domestically.
Around Tk 1.38 trillion of the domestic borrowing target is expected to come from the banking sector, with the remaining Tk 234 billion sourced from savings certificates and other non-banking financial institutions.
About the government's borrowing plans, the MCCI said there are two potential scenarios that could arise.
Firstly, an increase in credit supply by the banking system could crowd out private sector investors, leading to a shortage of funds for them.
Secondly, if the government borrows from the central bank, it could lead to higher inflation, placing a burden on consumers and the public.
The MCCI therefore advocated for close coordination between these two aspects of the government's financial strategy.
The chamber also said the budget should have concentrate on pro-poor and inclusive growth. It said the allocation for the social safety net should be significantly increased.
The proposed budget allocates Tk 1.36 trillion for the social safety net, compared to Tk 1.26 trillion in FY24. The rise in allocation is only Tk 97.54 billion or 7.72 per cent. The MCCI believes that a more substantial increase is needed.
The chamber identified several other challenges to economic growth, including underdeveloped communication systems, infrastructure gaps and red tape.
It also expressed worry about the weak revenue collection system with only 70.6 per cent collected between July and April of the current fiscal year and the low implementation rate of the Annual Development Programme (ADP) at 49.3 per cent for the same period.
In light of the rising import trend and the global crisis, the MCCI urged the government to take precautionary measures to control foreign exchange expenditure and maintain macroeconomic stability.
The chamber criticised the government's excessive subsidies on electricity, gas and fertiliser prices. It said these subsidies could increase further if not properly regulated.
The MCCI also took aim at the government's proposal to allow "money whitening" by paying only 15 per cent tax.
The chamber said this would discourage law-abiding taxpayers and could be seen as a penalty for those who already meet their tax obligations. Introducing penalties and imposing the maximum tax rate on undeclared income would be a more effective way to encourage compliance.
The chamber welcomed the decision to reduce the corporate tax rate by 2.5 per cent for unlisted companies and one-person companies. However, it called for a similar reduction for listed companies as well, which the chamber believes would encourage more companies to comply with tax payments.
However, the MCCI expressed disappointment that the government did not propose any changes to the rules on cash transactions for corporate tax purposes.
It argued that these rules are incompatible with the country's large informal economy, which accounts for around 80 per cent of economic activity. The chamber instead suggested reducing the rate of tax deduction at source (TDS) on services that create jobs, such as construction and infrastructure projects.
The MCCI also aired concerns about the proposed increase in income tax for individual taxpayers. With the cost of living rising due to inflation, the chamber urged the government to reconsider its plan to raise the tax rate from 25 per cent to 30 per cent without increasing the tax-free income threshold.
The chamber said simply raising the tax rate for existing taxpayers will not achieve the desired ratio of tax revenue to GDP (gross domestic product) without expanding the tax net to include more people.
It welcomed the government's focus on initiatives like "Cashless Bangladesh", "Digital Bank and Credit Scoring System", and "Digital Land Management" as key steps towards a "Smart Bangladesh" and greater automation.
The MCCI called for interim evaluations of the budget every three months, with revisions and modifications made if needed.
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