Proposed budgetary measures to discourage investment, hit businesses, affect Delta Plan 2100
While river dredging is a top priority of the government to increase navigation, a sharp rise in taxes on the import of dredgers in the proposed budget for FY21 will hit private investment in the sector and impact the Delta plan 2100adversely, says the business community.
In the proposed budget for the fiscal year 2020-21, the government increased import duty on dredgers from 1% to 5%.
On the other hand, the sector has to pay 15% value added tax (VAT), 4% advance tax and 5% advance income tax (AIT), pushing the total tax incidence to 29%.
In the outgoing fiscal year, only 1% import duty is charged, while customs duty, VAT and AIT were only for those who import heavy machines to sell in the local market, but not for dredging purposes.
On the other hand, there were no taxes applied on the import of dredgers previously since private contractors brought in the machines for use in their organizations.
On top of that, in almost all cases, the private contractors were using the machinery for river dredging on behalf of the government.
“River dredging is a priority project of Prime Minister Sheikh Hasina to increase navigability to make the river transportation vibrant, as well as to save the rivers. Bangladesh is a riverine country but most of the rivers have been grabbed and silted, which regained its lives due to the dredging,” Shafiul Islam Mohiuddin, President of Bangladesh Cutter Suction Owners’ Association (BCSOA) told Dhaka Tribune.
“It is a new and thriving sector, which needs nurturing to grow. But at the growing stage, such a huge rise in taxes will adversely impact the sector, shooting up the cost of doing business,” he warned.
When the government's dredging activities failed to revive rivers, the private sector stepped in and now river navigation in the country is better than before, claimed Mohiuddin.
So, retaining the success of the last few years and considering it as the priority sector of the Prime Minister, the authority concerned should waive the tax rate or bring it to a logical level to give space to grow the sector, said the business leader.
This project has benefited people by making transportation through rivers easier, while it gives life back to the rivers, also increasing its biodiversity as well as production of fish, he opined.
Impact on Delta plan 2100
The total dredger requirement for Bangladesh is about 500, and for Delta2100, Bangladesh will need an additional 2,000 dredgers over the next 20 years.
However, there are only 156 dredgers in Bangladesh, and this includes those owned by both the government and private sector contractors.
"In the given context, Bangladesh needs more dredgers to fulfill the demand of river dredging and realizing the Delta 100 plan," Lori A Walsh Imdad, an expert on the sector, said.
“If private contractors stop importing dredgers due to higher tax rate, it will not only impact the dredge contractors but also severely impact the government's river dredging plan and Delta2100. Dredging in Bangladesh is for the survival of the country,” she added.
One can argue, if dredger import is halted, Bangladesh will be able to manufacture dredgers locally as they have done in the shipbuilding industry. But dredging machines are very sophisticated machines. So far, only America and Europe can produce quality dredgers. Even China is yet to build dredgers properly, said Lori.
The good news is a few shipyards have plans to build American and European brand dredgers in Bangladesh. But that will take another 5-6 years, she adds.
So considering government priority, the tax rate should remain unchanged at 1% and other taxes including VAT should be exempted, she maintained.
Government dredging costs to go up
If the AT, VAT and AIT are imposed on imports of dredger, then the government's cost of dredging will also need to increase from the current rate of Tk180 to Tk300 taka per cubic meter. Then where is the benefit for the government, asked a key stakeholder of the sector, requesting anonymity.
In addition, many contractors of Bangladesh Inland Water Transport Authority (BIWTA) and Bangladesh Water Development Board (BWDB), have planned to purchase many dredgers. If they have to pay an additional Tk7-10 crore for a dredger with added taxes as per the proposed budget, they will not be able to continue to work on behalf of the government for river dredging, said the businessman.
At present, the government pays Tk162-180 per cubic meter for river dredging and the rise in tax would mean the government will need to be adjusted or the payment increased to at least Tk300 per cubic meter just so the private contractors' business can survive, he added.
About 29 private sector contractors have invested over Tk6,000 crore in dredger purchases to work for the government's demand of river dredging. The number of dredgers they have purchased is only 15% of the requirement.
Remove VAT from dredgers
VAT is applicable only when there is value addition with the products. But in the case of a dredger machine, contractors are importing for their own use and they are not selling dredgers for profitable value, explained Lori.
Meanwhile, if the higher rate of taxes were implemented, it would leave the sector in trouble, find it difficult be in trouble to realize the money lent to the sector, she added.
Approximately Tk4,000 crore has been borrowed by the contractors from several banks throughout the country.
Investment would be discouraged
The private sector contributed a lot in recent years to help the government dredge rivers, investing a huge amount of money,” Abdullah Al Mamun, a businessman in the sector, said.
New investors will not come into the sector if the new tax rate is implemented, which would increase the cost of doing business and also the size of investment, added Mamun.
"We urged the government to discuss the issues with the sector before passing the budget in the parliament and reconsider the rate for the sake of the country," he said further.
State Minister for Water Resources Zahid Faruk informed the parliament in February that about 448 small rivers, canals, and reservoirs were being dug and re-excavated in the first phase. In the second phase, 13,885.363 km of small rivers and canals will be re-excavated.