Bangladesh Budget: Tax cuts and incentives to spur growth and manufacturing

  • The FY22 targets 7.2% GDP growth with budget worth USD71.0bn keeping the budget deficit close to 6.0%
  • Proposed 2.5% tax cut implies 3.3% and 3.7% earnings growth for listed and non-listed companies respectively
  • The budget proposes numerous incentives through VAT and tax exemption to promote domestic manufacturing

The FY22 expects 7.2% GDP growth, keeping the budget deficit close to 6.0%.  Bangladesh's Finance Minister has announced the national budget worth BDT 6.0 trillion (USD71.0bn), with a targeted GDP growth of 7.2% for FY22 versus a provisional estimate of 6.2% for FY21. This budget is 12.0% higher than the prior year’s revised budget of BDT5.4 trillion (USD 63.4bn). The government has set a revenue collection target of BDT 3.9 trillion (USD 45.8bn) leaving a budget deficit of BDT 2.1 trillion (USD 25.3bn), 6.2% of GDP. Of this amount, BDT 1.1 trillion (USD 13.3bn) will be financed from domestic sources, and BDT 1.0 trillion (USD 11.9bn) will be financed from overseas sources. Financing from overseas sources will be 39.8% higher than the FY21 revised budget while financing from domestic sources will be 1.4% lower.

On domestic financing, the Government targets to borrow BDT 370bn (USD 4.4bn) from the sale of the National Savings Certificate and other non-bank sources. Compared to the revised budget of FY21, this amount is 4.8% higher. The target of bank borrowing stands at BDT 764.5 bn (USD 9.0bn), 4.1% lower than the revised budget of FY21.

Corporate tax rate reduced by 250 bps to help companies recover from the pandemic. The new corporate tax rate will be 22.5% from 25.0% for listed companies and 30% from 32.5% for non-listed companies, implying 3.3% and 3.7% earnings growth respectively from tax savings. This initiative also aims at making an investment in Bangladesh more attractive to overseas investors. In addition, the tax rate for one-person companies will be 25.0% from the existing 32.5%.

VAT and corporate tax incentives for branding ‘Made in Bangladesh’: The government proposes different VAT exemptions or preferential VAT rates for the domestic production stage of different products, including a broad range of home and kitchen appliances, for the mega-industry establishment, employment generation, and import substitution. The budget also proposes a 20-year tax exemption for local producers of three and four-wheeler automobiles and 10 years tax exemption for domestic manufacturers of home & kitchen appliances and light engineering.

Pandemic recovery strategies to continue with an increased focus on social security: The Government has already supported 58mn people and 0.1mn institutions through different incentives and will continue to focus on job creation, loan disbursement at a subsidized rate, social safety coverage expansion and money supply growth.

Mentionable impact on our coverage:

  • 250 bps tax rate cut is beneficial for all of our non-financial coverages as it would increase corporate earnings by c3%, keeping every other thing constant.

  • Inclusion of Mobile Financial Services (MFS) as a means of payment along with bank transfer. It will boost the MFS transaction. But the tax rate for MFS companies has increased to 40% (non-listed, 37.5% listed) from the current 32.5%. BRAC bank subsidiary bKash will be impacted by this when it becomes profitable.

  • Budget offers several incentives for consumer durables manufacturers. Newly introduced VAT exemption at the local manufacturing stage for washing machines is beneficial for Singer from coverage and Walton from listed companies. In addition, Singer is likely to get an income tax exemption for its new washing machine plant.

  • Income tax exemption for domestic three and four-wheeler manufacturers is likely to benefit Runner Automobiles when it starts the three-wheeler manufacturing plant next year. Among the other listed concerns, Ifad Automobiles, EnergyPac, Aftab Automobiles are likely to be befitted too.

  • Zero to a single-digit increase of different cigarette tariffs are positive for British American Tobacco Bangladesh to maintain volume uptick amid the pandemic.

  • Change in maximum depreciation rate for building and factory building has no impact on the valuation and minimum impact on the earnings of our coverage.

Table : Budget at a glance

Budget implications on Stock Market

250 bps tax rate cut is beneficial for all of our non-financial coverages as it would increase corporate earnings by c3%, keeping every other thing constant. (Tax rate table is given in the appendix)

Change in maximum depreciation rate for building and factory building has no impact on the valuation and minimum impact on the earnings of our coverage. 

The government proposed different initiatives to make the stock market more vibrant and dynamic. These include-

  • Start trading of Government securities

  • Introduction of Sukuk, Derivatives, Options and ETF

  • Introduction of OTC Bulletin board

The government also provided different incentives to establish a vibrant bond market. These include-

  • Tax exemption has been proposed on the applicable capital gain tax at the time of transferring property to a trust or Special Purpose Vehicle or transferring property by a trust or Special Purpose Vehicle, vice versa.

Budget FY21 Impact on Different Sector

Bank, Insurance, MFS and NBFI: Mixed impact for MFS and no impact for other financial companies; however, an incentive for bKash to get listed

  • Inclusion of MFS as a means of payment. The government acknowledged MFS as a mode of payment for the first time along with bank transfer. Now people can use MFS transactions where bank transfer is mandatory and when the amount exceeds BDT 50,000. Besides, the tax deduction rate is proposed to be 50% higher than the applicable rate where the bills are not received through banking channel or mobile financial services (MFS) by suppliers and contractors. Highly positive for bKash (MFS subsidiary of BRAC Bank).

  • The tax rate for MFS companies has been increased to 40% for non-listed and 37.5% for listed companies from the current 32%. It provides bKash an incentive to get listed in the stock market when it becomes profitable. No change in the corporate tax rate for the banks, NBFIs and insurance has been proposed.

  • Higher bank borrowing for deficit financing. The overall budget deficit will be BDT 2,146 billion. Of this amount, BDT 1,134 billion will be financed from domestic sources. The government targets to borrow BDT 764 billion from the banking system which is 4.1% lower than BDT 798 billion of FY21 revised target. The rest 370 billion will be taken from National Savings Schemes (NSC) and other non-bank sources. Due to the lower interest rate in bank deposits, NSC sales amount increased to BDT 332 billion in the first nine months of FY21, implying an increase of whopping 196% yoy. As a result, the government’s bank borrowing target in the revised budget of FY20 was decreased to BDT 797 billion from the budgeted amount of BDT 850 billion.

 Consumer durables: VAT and tax exemption to encourage domestic production; positive for Singer, Walton.

  •  VAT exemption on manufacturing of white and brown goods to benefit Singer and Walton. The budget proposed VAT exemption at the local production stage for white goods such as washing machine, microwave oven, electric oven and brown goods such as blender, juicer, mixer, grinder, electric kettle, rice cooker, multi-cooker, pressure cooker. Singer, in our coverage, has started washing machine facility in May 2021 whereas the listed company, Walton has been producing washing machine at their facility much earlier. We estimate that washing machine contributes 5-10% on revenue of Singer and Walton. Brown goods, on the other hand, contribute c10% to Singer’s revenue and c5% to Walton’s revenue. Singer, however, does not produce them locally.

  •  Tax exemption proposed for home and kitchen appliances for 10 years, expandable up to 20 years. This exemption is likely to be for new production facilities and given under meeting some conditions. We think Singer’s new washing machine facility will avail this benefit. However, Walton is less likely to get such benefit for its refrigerator manufacturing unit, which already enjoyed tax exemption once and supposed to pay reduced income tax (10%) till 2032.

  •  Existing VAT exemption facility for manufacturing refrigerator, freezer and their compressors has been extended for another year; manufacturing of air conditioner and its compressor for three more years. Both Singer and Walton will benefit from this proposal.

 Tobacco: Limited price hike proposed for high and premium segment cigarettes is better than our expectation

  • High and premium segment cigarette prices increased by c5% only. This is similar to the previous year’s price hike of c4% for the mentioned segments. We consider this single-digit price hike per year to be the government’s new strategy of revenue collection from this industry as high double-digit price hikes in the past led to a rise in illegal manufacturing.

  •  No price increase for medium and low-segment cigarette as well as non-cigarette tobacco products. During the previous year, the government increased the minimum prices of these products between 8% and 47%. We think this year the government remained considerate of consumers’ purchasing power as it could lead to an increase in illegal manufacturing.

The budget proposal is mostly favourable for British American Tobacco Bangladesh to maintain its volume uptick amid the pandemic. We note that we will review our TP for BAT BD based on the budget proposal and recent company updates.

Automobiles and Transportation: Tax exemption to Impact Positively

  • Automobile companies engaged in the production of three and four-wheelers in Bangladesh to enjoy tax exemptions for ten (10) years which may be extended to a further 10 years upon certain conditions. This is positive for RUNNERAUTO, which is currently working on setting up a three-wheeler manufacturing plant which is expected to be completed by FY2022. On the other hand, 30% of IFADAUTOs’ revenue comes from sales of assembled trucks. The 10-year tax exemption will also impact another listed automobile company AFTABAUTO positively. The company assembles Toyota and Hino branded vehicles. Newly listed Energypac (EPGL) will also get benefitted as the company has an assembly plant for JAC-branded pick up vans.

  • VAT exemption for motor car and vehicle manufacturers for five (5) years.

  • A new measure of Advance Tax for electric vehicle registration

Construction Materials: Positive for cement & paint manufacturers

  • Manufacturing industries to shine as advance tax (VAT) on imported raw materials is reduced to 3% from the existing 4%. Pertinent to mention here, AT on raw material import for cement manufacturers is decreased to 2% from the previous 3%. Also, source tax on supply of cement is decreased to 2% from 3%.

  • Advance tax exemption to boost BRGR’s industrial paint margin. Paint companies using raw materials such as ethylene/propylene, ethylene glycol, and terephthalic acid to manufacture PVC and PET resin are exempted from the existing Advance tax.

Telecommunication Sector: domestic handset manufacturing encouraged and import to be expensive; minimal impact on telecom operators.

  • Domestic manufacturing and assembling of mobile phone get 2 additional years of VAT exemption, thus keep mobile prices on the lower end.

  • Customs duty on imported handsets is proposed to increase from 10% to 25%, thus increasing the costs of imported items.

  • Import duties of some raw materials for SIM card and scratch card manufacturing to decrease.

  - Black ink from 25% to 5%

-Inkjet refill from 10% to 5%

Pharmaceuticals and healthcare: Favourable for anti-cancer drugs and API manufacturers; minimal impact on our coverage.

The budget declared concessions and duty reduction which may benefit some of the listed companies. However, there is no substantial impact on our coverage.

  • Duties and taxes reduction for 15 raw materials of anti-cancer drug production may benefit listed Beacon Pharmaceutical.

  • Some raw materials for domestic Active Pharmaceutical Ingredients (API) production are included in the existing concessions, which may benefit listed Active Fine Chemicals.

  • Concessional facilities for the raw materials required in the production of medical products have been expanded, which may benefit the listed JMI Syringe.

  • VAT exemption at the domestic manufacturing stage of sanitary napkins along with VAT exemption for some imported raw materials in the sanitary napkin and diaper production.

 Consumer staples: Some benefits for Reckitt Benckiser, Marico; minor benefits for Olympic

  •  Reckitt Benckiser, Marico will continue to benefit from complete duty exemption for all kinds of hand sanitiser raw materials.

  • SD hike for sugar confectionery goods such as imported biscuits (from 20% to 45%) might be positive for Olympic. The SD hike will make imported biscuits more expensive and can divert consumption towards local biscuits.

Other proposals include -

  • CD on the mushroom to be reduced to 5% from 15%

  • 20% SD and 15% VAT to be imposed on the import of Carrots, turnips, salad beetroot, salsify, celeriac, radishes and similar edible roots, fresh or chilled.

 Energy: Positive for MJL, Lub-rref

  • Import duty reduction from 10% to 5% for Additives for lubricating oil is positive for MJL and LRBDL. MJL makes c20% lubricant locally by blending base oil. Also, supplementary duty on import of recycled lube base oil & lubricating oil is increased from 0% to 20%.

  •  MJL’s subsidiary Omera Petroleum is likely to benefit from the extension of VAT exemption for the manufacturing of LPG cylinder.

 RMG & Textile: Raw material to have concessionary rate; No Coverage

  •  Raw materials such as photosensitive rotary screen, temperature sensor and loaded PCB have been included in the concessionary rate. This will benefit some of the export-oriented listed companies.

  •  Continuation of existing benefit includes an additional 1% cash incentive against exports of apparel goods will continue for the incoming fiscal year.

  •  All kinds of duties exemption for all raw materials of Covid-19 testing kits, PPE, and masks. Some textile companies manufacturing such products will be benefitted.

 Footwear & Tannery: Duty reduction to decrease manufacturing Cost; No Coverage

  • Some cost reductions for BATASHOE, APEXFOOT, FORTUNE, LEGACYFOOT as the customs duty on some raw materials of footwear companies (Dyed knitted or crocheted fabrics and yarns of different colors knitted or crocheted fabrics) has been reduced to 15% from 25%. Footwear companies that have the above raw materials will most likely see a decline in manufacturing costs.

  • An increase in customs duty and regulatory duty on industrial salt may increase the costs of APEXTANRY. Customs duty has increased from 15% to 25% and regulatory duty has increased from 0% to 3% for industrial salt. Tanneries use the salt to preserve rawhides so manufacturing cost will increase, resulting in increasing raw material cost for shoemakers.

Feed - Reduction in duty and taxes of feed ingredients to be positive for Index Agro & Aman Feed; No coverage

  •  Some decrease in manufacturing cost for INDEXAGRO and AMANFEED as there has been a reduction in duty and taxes of feed ingredients. The feed ingredients include De-oil rice bran, Rapeseed extraction, Rice bran, Wheat bran, Sunflower meal etc.

Agro-Machineries – Tax Benefit to Boost Sector; No Coverage

  •  ACI and other manufacturers of agro-vehicle machinery will be benefitted from VAT exemption at manufacturing and trading stages of weeder & winnower and AT exemption on thresher machine, power reaper, power tiller, operated seeder, combined harvester, rotary tiller, weeder and winnower. Beneficials for ACI Motors (a subsidiary of ACI)

  • Duty tax has been reduced from BDT1500 per MT to BDT500 per MT of steel in Agriculture sector.


  •  10-year tax holiday for local light engineering product manufacturers. VAT reduction from 15% to 5% for paper cone manufacturers in the sector is also proposed.

  • Positive for AAMRATECH, AGNISYSL, BDCOM, DAFODILCOM due to VAT Exemption on domestic production of loaded Printed Circuit Board (PCB) and Router. Also, manufacturers of some particular IT product will get the exemption.

  • Positive for RAKCERAMIC, FUWANGCERA etc. as 15% VAT on dealer and distributors of locally produced tiles and sanitary ware is proposed on net commission.

  • Positive for cable manufacturers like BBSCABLES as the tariff on import of plastic framework and coated calcium carbonate is reduced from 25% to 5%.

  • Tax exemption for cloud service providers, system integration, e-learning platform, e-book publications, mobile application development service and IT freelancing until 2024. Positive for eGeneration Ltd.

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