Macro Analysis /

Bangladesh Budget: Targeting 8.2% GDP growth in FY19-20

    S. M. Galibur Rahman
    IDLC Securities
    16 June 2019
    Published by

    The Finance Minister has announced the national budget worth BDT 5.23 trillion (USD 61.9bn) with a targeted GDP growth of 8.2% for FY 2019-20 (compared to a provisional estimate of 8.13% of FY2019). This budget is 18.2% higher than last year’s revised budget of BDT 4.42 trillion (USD 52.3bn). The government has set a revenue collection target of BDT 3.78 trillion (USD 44.7bn) leaving a budget deficit of BDT 1.45 trillion (USD 17.2bn), 5.0% of GDP. Of this amount, BDT 773.6 billion (USD 9.2bn) will be financed from domestic sources and BDT 680.2 billion (USD 8.0bn) will be financed from overseas sources. Financing from overseas sources will be 44% higher than 2018-19 revised budget, while financing from domestic sources will be 2% lower.

    On domestic financing, the government targets 37% lower NSC sales of BDT 300 billion (USD 3.6bn). This leaves the government to target 53.3% higher bank borrowing of BDT 473.6 billion (USD 5.6bn) over the revised budget 2018-19.

    Implementation of new VAT law with several modifications: Value Added Tax and Supplementary Duty Act, 2012 will be finally implemented in this year with several modifications. In addition, Custom Act 2019 will be placed in parliament very soon which will replace the existing Custom Act 1969. Under the new VAT law, there will be four major VAT rates: 5%, 7.5%, 10% and 15%. VAT exemption has also been proposed for different necessary products along with a concessionary VAT rate of 2.4% for pharmaceuticals and 2% for petroleum products (trading stage). In addition, the VAT registration threshold has been increased to BDT 30mn from BDT 8mn. 

    Steps to control National Savings Certificate (NSC) sales: Digitization of NSC sales will be live from July 2019 and it is expected to control the misuse of the regulatory cap. In addition, tax at source for NSC has been proposed to increase to 10% from the current 5% level. The change is expected to moderate the attractiveness of NSC. 

    Incentives for two foreign exchange earners, Remittance and RMG: 2% incentive on money remitted (remittance) by Bangladeshi expatriates will be provided from this financial year. At present, four sectors of readymade garments are receiving export incentives at 4%. An export incentive of 1% has been proposed for the rest of the sectors of ready-made garments in the next fiscal year. In addition, reduced tax rates for the sector were supposed to end by June 2019, but they are proposed to continue. 

    Cash dividend encouraged, stock dividend discouraged: To promote cash dividend, the government proposed a 15% dividend on stock dividend and a 15% additional tax on retained earnings and reserves as it exceeds 50% of the paid up capital of the company. These directives require more clarification regarding its application. We believe there will be more discussion on this issue and necessary adjustments will be made before it gets final approval. 

    Increased tax-free limit for dividend income: The individual tax-free limit of dividend income from listed companies has been increased to BDT 50,000 from the current level of BDT 25,000.

    Abolished multilayer taxation on dividends to promote foreign investment: Multilayer taxation on dividend income will be avoided for non-resident companies along with resident companies.

    Impact on our coverage

    • Tobacco price increase with no change in existing SD to positively impact the profitability of BATBC BD.
    • Increase in Supplementary Duty (SD) from 5% to 10%  to reduce minutes of usage (MOU) of GRAM BD by 2-3% in the short term but no particular long-term implication since it usually picks up to normal levels within a year.
    • Increase in raw material costs for OLYMPI BD & GHAI BD.
    • Duty waiver (except customs duty) on various components for refrigerator, air conditioner and compressor production to positively impact SINGER BD 
    • Duty exemptions for 43 raw materials of cancer medicine to have a positive impact for pharmaceutical companies.