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Tax reforms welcome, but business fears govt borrowing to eat up cred

Staff Correspondent
Business cautiously welcomed yesterday's proposed budget with its cuts in corporate tax rates and import duties, but there were concerns that increased government borrowing would squeeze out the private sector from the credit market.
While the headlines may have been grabbed by the moves on safety nets and food security the business community was yesterday busy trying to make sense of a range of duty and tax changes that will impact their prospects in the coming year.
Top of the List of positives was the cut in corporate tax that will be reduced to 27.5 percent from 30
percent on listed companies and to 37.5 percent from 40 percent on non-listed companies. There was also praise for cuts in import duty on capital goods and some raw materials, and proposals for tax holidays in certain sectors.
The raising of tax thresholds in the Small Business sector was also seen as a plus.
"It is a little early to assess the whole budget, but instantly it looks more or less okay from the business point of view," said Fazlul Hoque, president of Bangladesh Knitwear Manufacturers and Exporters Association.
But the nagging doubt repeated by many business leaders was
whether the government's plan to finance a large part of its Tk30,580 crore defict through domestic borrowing would soak up too much of the local credit supply.
"The government's possible huge borrowing from the banking system to meet budgetary allocations will cause a liquidity crisis, and that will affect bank interest rates and hamper normal growth in the industrial sector," said Anwar-Ul-Alam Chowdhury Parvez, President of the Bangladesh Garment Manufactures and Exporters Association.
Parvez's views were echoed by Syed Nazim Manzur, managing director of one of the country's larg-est shoemakers Apex Adelchi
Footwear. "If the next fiscal year's budget is financed depending mainly on bank borrowing there is the possibility it will crowd out the private sector," he said.
The most positive reaction to the budget came from the President of Bangladesh Textile Mills Association (BTMA) Abdul Hai Sarker. "It is a people and industry friendly budget," he said, only moments after the finance adviser had finished making his statement.
“I am happy with the budgetary proposal, as the government has addressed the long cherished goal of a reduction of duty on the import of textile raw materials and intermediary goods," he added.
In the proposed budget duty on capital machinery and spares will be reduced to 3 percent from 5 percent, duty on raw materials to 7 percent from 10 percent and on intermediate raw materials to 12 percent from 15 percent.
The garment industry, the country's largest export sector, relies heavily on imported materials while cheaper capital goods will allow increased mechanization.
Cuts in corporate tax rates were especially welcomed by the leaders of the country's capital markets, who said they would further add to the incentives to list.
Salahuddin Ahmed Khan, chief executive officer of Dhaka Stock
Exchange said:
"The revised corporate tax structure will encourage companies, especially the industrial units, to be listed on the stock market."
Salahuddin also welcomed the government's decision to offload more shares in state owned power, energy, telecom and industrial companies.
But not everyone believed the budget went far enough in encouraging growth. In the ICT sector for example industry leaders said they had hoped for a five year tax holiday for software developers and the soon to be opened call centres. Under the proposed budget the tax holiday will be three years.