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Ambitious Bangladesh Budget Announced

by Mary Swire,, Hong Kong

14 June 2011

Bangladesh’s 2011-12 Budget, introduced to parliament by Abul Maal Abdul Muhith, the Minister of Finance, totals a record BDT1.64 trillion (USD21.7bn), supported by tax revenues which are expected to increase by over 20%.

The budgetary framework assumes that Bangladesh will achieve 7% economic growth in the next fiscal year, and that, by the 2014-15 fiscal year, growth will have risen to 8%. Such growth is predicated on the development of the country’s agricultural and small business sectors, as well as infrastructure developments in the power and energy and communication sectors financed out of the increased Budget.

It is forecast that total revenue receipts in the 2011-12 fiscal year will represent 13.2% of gross domestic product (GDP), so that, with public spending taking 18.2% of the economy, the government expects a net fiscal deficit of only 5% of GDP. That deficit should then be able to be financed from both domestic and external financing sources.

However, the government also recognizes that actual tax collections by the National Board of Revenue (NBR), at only 9.3% of GDP, lag behind many developing countries, and has presented an “NBR Modernization Plan” for 2011-16. The main objectives of the Plan are to raise the country’s tax-GDP ratio to 13% by 2016 through increased tax compliance; and to initiate modern web-based services for e-registration, e-filing of tax returns, tax payments and rebates.

The government is to increase the progressivity of the individual income tax by increasing initial thresholds, while a 10% surcharge will be placed on the income of the wealthiest taxpayers. Furthermore, the tax exemptions enjoyed by government ministers, members of parliament and judges, and the reimbursement by the government of income tax paid by government officials and employees, have all been abolished.

There are no major changes to corporate taxes. The time limit for existing corporate tax holidays for selected industries, which were due to expire on June 30, 2011, will be extended for a further two years, while tax holidays are also proposed for certain areas and sectors in conformity with the government’s industrial policy, while tax holidays for infrastructure projects, such as roads, will last for 10 years, instead of the existing five or seven years.

While Muhith confirmed that the promised updated value added tax (VAT) and direct tax bills have already been drafted, he said that they could not be presented to parliament without having further discussions in the country. It is hoped that they will be presented by December this year.

Together with changes to import duties aimed at the encouragement of domestic industries, Muhith declared that the government recognizes the contribution of small and medium-sized enterprises to the generation of employment in the economy and therefore proposes various measures to assist them. He has also proposed a VAT exemption for some products to provide for increased jobs through the development of local industries.

TAGS: individuals | compliance | tax | small business | economics | business | value added tax (VAT) | tax compliance | fiscal policy | budget | corporation tax | small and medium-sized enterprises (SME) | Bangladesh | tax breaks | import duty | tax reform | individual income tax

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