Budget FY2021-22 Analysis by Research & Innovation Lab
The government of the Peoples’ Republic of Bangladesh recently announced a proposed budget for FY2021-22. The size of the budget 2021-22 is BDT 6.03 trillion of which the budget deficit is set at BDT 2.15 trillion. The real GDP growth target is 7.2% and the inflation target is 5.3%. The government has targeted revenue of BDT 3.89 trillion. The proposed ADP is BDT 2.25 trillion.
7.2% GDP target seems too challenging due to slow private sector growth and keeping the inflation rate to 5.3% would be difficult. BDT 3.89 trillion revenue target is ambitious for the COVID-19 induced economic risk. BDT 3.29 trillion domestic borrowings could limit private sector growth. But total investment including public and private investment as % of GDP slightly escalated to 32.3% in 2020-21 from 31.8% in 2019-20 due to economic recovery activities around the country. Moreover, Financing from the banking channel is set to drop by 4% in FY2021-22, which may increase the private sector credit growth to some extent.
This year’s budget is somewhat capital market-friendly budget. There are some capital market incentives like the corporate tax rates of listed and non-listed companies reduced by 2.5%. But the tax gap between the listed and unlisted companies remained the same, the tax-fee limit of dividend income remains unchanged to Tk. 50,000, Capital Gain Tax is exempted at the time of transferring property between the transferor/transferee and a trust or Special Purpose Vehicle (SPV) to develop a strong market for Sukuk or Islamic bond. However, exemption of stamp duty and registration taxes could also be granted for Sukuk, Depreciation allowance rate is reduced for tax purposes from 10% to 5% for ordinary buildings, and 20% to 10% for factory buildings. This will improve the profitability of the listed companies especially those having higher fixed assets, Introducing withholding tax deduction on the trading commission (transaction cost) fixed by the Securities and Exchange Commission, instead of the current provision of deducting the tax being charged on the value of bond transactions, the government has decided to provide policy support to build a strong bond market as an alternative to banks for sourcing long term finance to entrepreneurs, the policy support on developing a strong bond market will have a significant positive impact on the country’s macro-economy.
Download the full report – Budget FY2021-22 Analysis