Also hopes for more stimulus, corporate tax cuts
The Federation of Bangladesh Chambers of Commerce & Industries (FBCCI) has urged the government to reconsider reforming the banking system, as the upcoming national budget for the fiscal year 2021-22 closes in.
All hidden charges from the banking should be abolished, and banks should consider issuing alternative credit ratings in the sector, in consideration for access to capital and access to credit of the overall economy, said Sheikh Fazle Fahim, immediate past president of the trade body.
He just handed over his duties to the new FBCCI president Md Jashim Uddin on Wednesday.
The banking business model needs revisiting, and banks' services should be more inclusive of taking it to the sub-district, union, and ward level. CMSMEs should be able to avail collateral-free credit, he added.
FBCCI also wants the trade-financing model to be less capital intensive, for increasing the revenue of businesses.
He proposed shifting from bank-to-bank business to a business payment system, like a back-to-back letter of credit (LC) trade facilitation tools, from cottage, micro, small and medium enterprises (CMSMEs) to the largest industries, including but not limited to, domestic agriculture, manufacturing, services, and ICT sectors.
He also recommended enforcing bank-to-bank transactions at the dealer, retailer, distributor levels to increase tax coverage and tax-to-GDP ratio.
“We need to ensure an invoice-based bank-to-bank transaction process in every transaction step, to increase the government's revenue and the tax-GDP ratio. There are many opportunities to increase the coverage of income tax. In terms of taxation structure, we need to abolish the advance income tax and advance tax by reducing them continuously,” stated Fahim.
The government had reduced corporate tax for non-listed firms from 35% to 32.5% in last year's budget, using scientific methodology, to buffer the loss from 7-9%, from International Support Measures (ISM) in export earnings, following the LDC graduation.
However, the tax rate for publicly traded companies remained unchanged at 25% during the last fiscal budget.
But with the ongoing surge in the Covid-19 pandemic and the disruptions brought by the multiple waves, the business community has been anticipating further tax cuts as the cost of business has increased, while consumption decreased.
Fahim suggested abolishing the advanced income tax (AIT) and advance tax (AT), gradually in the next two years and reducing the corporate tax by 2.5%.
FBCCI is also expecting the government to focus on the health sector in the upcoming budget
“Lockdown measures are not sustainable measures to combat the current pandemic situation, and developed economies worldwide - with heavily invested advanced insurance, health, financial, and other sectors- have been a precedent to it.
In this regard, we have to be more agile, restructure and focus on our health care management system that would help us sustain and grow even if we get infected; preventing it from being morbid,” said Fahim.
FBCCI officials also believe that if the outbreak extends to the next quarter, then the country's SMEs could be in trouble.
In that regard, the trade organization proposed another stimulus package as soft loans of up to 50% to the agriculture and CMSME sectors.
In addition, the large industry and export sector could be given 5% as a grant of the stimulus package according to its president.
According to FBCCI, Bangladesh was able to absorb last year's Covid-19 shock by consolidating fiscal, non-fiscal, tariff, interest, subsidy, and policy support by the government, specifically the finance ministry.
Through the banking system, some loan facilities were introduced with lower interest rates. The main aim of these loans was to revive the economic activities, keep workers and employees in their respective works and keep intact the capability and competitiveness of entrepreneurs.
In the fiscal year 2019-20, Bangladesh's GDP growth rate was 5.24%.
As of March this year, the forex reserves stood at $43.43 billion, and remittances in the current fiscal year stood at $18.6 billion amid the pandemic.
Almost 77.24% of the announced stimulus package of Tk40,000 crore in large-scale enterprises, 72.31% of Tk20,000 crore in CMSME and 69.32% of Tk5,000 crore under the agricultural refinance scheme, targeted in agriculture, manufacture, large industries, and export sector during the first wave of Covid-19, has already been disbursed.
FBCCI is also anticipating a 1% cash incentive to the banks that have played active roles in the disbursement of the stimulus package
It hopes the upcoming budget for 2021-2022 will be made taking the practical execution of Vision 2021, Vision 2041, SDG 2030, the 8th Five-Year-Plan, Covid-19 stimulus packages announced by the government, and the ongoing Covid-19 second wave.