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In continuation of its exploration for new business windows, ACI Ltd now eyes a 5% stake in a proposed digital bank “Kori Digital Plc”, according to the Dhaka Stock Exchange.

Infographic: TBS

Despite a less-than-expected overall economic growth during the last financial year, 2022-23, the country witnessed a notable upswing in Value Added Tax (VAT) collection from big companies.

Stakeholders say the surge in commodity prices, particularly of import-dependent goods, bolstered the government’s VAT revenues.

Additionally, strategic measures such as elevating supplementary duty and VAT rates, as well as intensifying VAT officer supervision to curb evasion, expedite case settlements and collection of dues contributed to this relatively positive outcome, they said.

According to the National Board of Revenue (NBR), VAT collection in the large taxpayer units (LTU) office from the major companies amounted to Tk58,566 crore in FY23, marking a 12% growth compared to the previous fiscal year.

However, despite this significant increase in FY23, the collection still fell short of the financial year’s target by Tk7,500 crore.

The LTU-VAT office currently oversees the VAT payments of the companies that each account for Tk5 crore or more annually. A total of 110 companies from 37 different sectors currently fall under the purview of this office.

According to the NBR, the tobacco industry stands as the primary contributor to the VAT collection from large taxpayers units.

Three companies within the tobacco sector, spearheaded by British American Tobacco Bangladesh, account for over Tk30,000 crore, providing more than half of the total VAT collected from large taxpayer units in FY23, as per official data.

Additionally, VAT revenue has witnessed substantial growth in several other sectors due to gradual price increases in various products during the last financial year. Soap, beverage, cement, dairy products, biscuits, other food products, and edible oil have all contributed significantly to VAT collection.

According to NBR sources, the revenue of the LTU-VAT office witnessed a substantial increase of 241% from two companies in the edible oil sector, namely Shabnam Vegetable Oil Industries Limited and Bangladesh Edible Oil Limited.

Didar M Dabirul Islam, general manager of Bangladesh Edible Oil, said in FY23, the price of edible oil surged by over 50%. Additionally, the withdrawal of VAT exemption from March further contributed to a significant increase in VAT.

Speaking on the condition of anonymity, a high-ranking officer from a consumer goods company told The Business Standard that the NBR exerted pressure for tax and VAT through various means, eventually leading to the burden being passed on to consumers.

Meanwhile, the industrial gas sector experienced a remarkable 179% price hike in FY23, leading to a notable 22% increase in VAT collection.

The LTU-VAT office receives VAT payments from nine companies operating within the cement sector of the country. These companies collectively experienced a remarkable 29% growth in VAT contributions during the last financial year.

Masud Khan, advisor at Crown Cement, told The Business Standard, “Bangladesh relies on imports for clinker, the main cement raw material and other essential materials. Some of these imported raw materials are costly, and their prices have been further impacted by the devaluation of the taka against the dollar.”

“Consequently, the increased costs have led to higher prices in the cement sector, resulting in an overall boost in VAT collection,” he added.

He further said the larger companies have paid a greater amount of VAT compared to smaller ones.

“Smaller companies are facing challenges in opening a Letter of Credit (LC) due to the prevailing dollar crisis, which is not the case for the larger companies. As a result, the bigger companies have managed to conduct their business transactions more smoothly and make larger VAT payments compared to their smaller counterparts,” Masud Khan said.

Speaking on the condition of anonymity, an official from the LTU-VAT office told TBS that one of the primary reasons for the NBR failing to meet VAT collection targets is the issue of overzealous targeting. According to the official, the set targets are unrealistically high, leading to difficulties in achieving them.

Banks-insurances lag behind

Although certain sectors have shown promising performance, the banking sector witnessed a modest growth of 5% in VAT during FY23. Conversely, VAT collection from six insurance companies declined by 4.5% compared to the previous fiscal year.

Insiders within these sectors attribute the slower growth and decline in VAT collection to the overall economic slowdown, which has impacted the expected income within the industry.

Syed Mahbubur Rahman, managing director and chief executive officer of Mutual Trust Bank Limited, said the overall business in the banking sector experienced a slowdown. This decline in business, coupled with a reduction in imports, led to a shortfall in the expected VAT collection from the banking sector.

Regarding the VAT collection decline from the insurance companies, he said marine insurance has seen a decrease. Additionally, certain segments of the transport sector have been exempted from insurance.

Negative growth in VAT collection in five sectors

In the previous financial year, several sectors experienced negative growth in VAT collection, including insurance, electricity distributors, oxygen, telecom equipment, and advertising firms.

NBR officials said the reduction in the number of power projects under the Rural Electrification Board (REB) and the decrease in payments to contractors have contributed to the decline in VAT collection from electricity distributors.

As for the oxygen sector, Linde BD faced challenges in competing with local companies, resulting in a decline in its performance and subsequently leading to lower VAT collection from this industry.

Growth less likely in FY24

Stakeholders in various sectors believe that the anticipated growth in the business activities of major companies for the current FY24 is less likely to materialise due to the continuous economic slowdown and the prevailing political uncertainty in the country.

Shahed Alam, chief corporate and regulatory officer at Robi Axiata Limited, said, “If inflation rises, people tend to reduce their spending, directly affecting the income of mobile operators.”

The lack of political stability creates challenges in implementing new initiatives and roll-outs, further impacting the industry’s growth prospects, he added.

Publicly listed IBN Sina Pharmaceutical Industry Ltd has decided to invest Tk10 crore in its active pharmaceutical ingredients (API) project for capital machinery acquisition.

The drug maker is providing the fund as capital investment in the API project—located at the government’s API Park in MunshiGanj, according to IBn Sina Pharma’s disclosure on the Dhaka Stock Exchange (DSE) website.

Earlier, it already invested Tk25 crore in the project and after this new investment, the total amount will be Tk35 crore.

In 2019, IBN Sina Pharma started the API project by forming a subsidiary company named IBN Sina API Industry Limited. The drug maker owned 99.99% shares of the API company.

In its annual report for the fiscal 2021-22, IBN Sina Pharma said the demand for API products—mostly known as pharma raw materials—is eventually expanding in the domestic market as well as new export frontiers.

To facilitate supply of pharma raw materials and to reduce the dependency on importing API, timely action has been taken to keep pace with global shifting of the sector and implementing the government’s API Park considering the impact of LDC graduation in the pharmaceutical sector, it added.

Kabir Hossain, company secretary at IBN Sina Pharma, told The Business Standard that the construction works of the API project have been advanced towards the final stage. Hopefully, production in the API plant will be started by next year.

The company also said in the annual report, API is one of the priority projects of the company established to achieve basic raw materials support locally for company’s own use and for extending API business at home and abroad for the national interest. But the project completion has been delayed for about two years due to Covid-19 pandemic.

Meanwhile, IBN Sina Pharma also decided to purchase lands worth Tk5.58 crore in Chattogram and Barisal to build its sales depot.

Last year, the company purchased a total of Tk20.39 crore worth of land for setting up sales depots.

IBN Sina Pharma had paid a 60% cash dividend for FY22, the highest since the fiscal 2008-09.

In FY22, the company’s consolidated earnings per share (EPS) increased 24% to Tk19.39, from Tk15.66 in FY21.

In the first three quarters of FY23, its revenue grew by 3% to Tk663.89 crore from the same period a year ago.

During the period, its net profit also increased by 1.49% to Tk42 crore and the EPS stood at Tk13.52. Its shares closed at Tk286.60 each on Sunday at the DSE.

Infograph: TBS

Japan wants to support Bangladesh in improving six potential areas to face the challenges of graduation from the least developed countries (LDC) status but has called on the government to improve the country’s business environment.

Japan’s Economy, Trade and Industry Ministry has identified the six areas – diversifying the apparel sector, becoming an IT giant, transitioning to clean energy and heavier industries, becoming a logistics hub, and moving towards a circular economy.

“Japan wants to work jointly with Bangladesh for energy security and climate change,” Minister Yasutoshi Nishimura said while addressing a summit titled “Bangladesh-Japan economic relations for the next 50 years: For the industrial upgradation of Bangladesh” in Dhaka on Sunday.

Officials of the Japanese ministry said to achieve progress in these areas public-private needed to work together.

The ministry’s Deputy Director General Toshiki Wani mentioned that they focused on these six areas as potential fields of Japan-Bangladesh public private cooperation.

The Japan External Trade Organization (Jetro), the Bangladesh Investment Development Authority (Bida), and the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) jointly organised the summit.

The Japanese economy minister called on Bangladesh to work towards upgrading industrial manufacturing and developing the IT sector.

Over 300 Japanese companies have invested in Bangladesh and more such investment is coming, he said.

“In light of the last 50 years’ relations, we need to set the direction for the next 50 years,” he added.

Attending the event, Industries Minister Nurul Majid Mahmud Humayun urged Japanese businesses to invest in fertiliser, agriculture, chemical, footwear and automobile industries.

The minister also gave assurance of proving all types of support required.

Bangladesh wants to start negotiations to sign a deal with Japan to get its market access after LDC graduation, Tipu Munshi said, adding that “We don’t wait for graduation”.

He said that the Economic Partnership Agreement (EPA) is in progress to take Japan-Bangladesh trade relations to new heights.

“The first round of discussion has already been held in Japan and the second round of discussion will be held in Dhaka on July 25-26. Both countries have agreed to execute this agreement soon,” said the commerce minister.

Also present at the event, ICT Division Minister Zunaid Ahmed Palak said “We have demographic dividend benefits and Japan has an ageing population problem.”

“Here is the scope for both countries to work together,” Palak added.

He also mentioned that a number of Bangladeshi IT professionals are serving Japanese companies both in Japan and Bangladesh.

Business leader request for energy cooperation

FBCCI president Md Jashim Uddin at the summit urged Japan for energy cooperation as it is a very crucial issue in Bangladesh.

“By investing in clean energy technologies, we can not only bolster our energy security but also contribute to global efforts in mitigating climate change,” he said.

BIDA Executive Chairman Lokman Hossain Miah, urged Japanese investors to invest in Bangladesh.

“Bangladesh is one of the most profit making countries in the world as it is a market of 170 million population,” he said.

Similar energy vision of Japanese firms

In a panel discussion at the event, Japanese investors said they have the same kind of vision as Bangladesh.

They welcomed the government’s move to adopt an integrated energy and power master plan putting importance on renewable and advanced technology.

“We would like to work together with Bangladesh’s energy sector to contribute to the further development of the country,” said Shinichi Nagata, general manager at Sumitomo Corporation Dhaka Office.

He said that renewable energy technology like ammonia and hydrogen is the future of Bangladesh.

Bangladesh needs to accelerate the development of the terminal facility to receive LNG as its local gas reserve is decreasing, he stressed.  “This is very necessary for sustainable energy transition and sustainable economic growth.”

Myung Ho Lee, country representative of Mitsubishi Corporation Dhaka Branch Office said “It is very important that the national master plan is very realistic and achievable instead of being a fancy one.

“This will help Japanese companies together with Bangladeshi companies and they apply needed programmes for the further hydrogen and ammonia project.”

Yoshiro Kaku, chief representative of the New Energy and Industrial Technology Development Organization (Branch Office in India) said his company desires to be the first to implement the ammonia project in Bangladesh.

The company along with some other countries started a study in March 2022 in order to achieve 20% liquid ammonia co-firing and higher co-firing ratio up to 100%, single-fuel firing at the Adani Power Mundra Coal Fired Power Plant.

MoUs signed at the summit

Bangladesh and Japan signed three memorandums of understanding (MoUs) at the summit to enhance bilateral trade and investment between both countries.

The Bangladesh Special Economic Zone Ltd (BSEZ) signed the first MoU with Bangladesh IRIS Co Ltd—a Bangladesh-Japan joint venture company promoting education for children—to purchase land and get the right to use the land inside BSEZ of phase 2.

The BSEZ signed a second MoU with Brac Kumon to provide school going children near the BSEZ areas with the education opportunities.

The commerce ministry signed the third MoU with Jetro to cooperate in promotion and exchange of trade information and to enhance the capacity of Bangladesh’s commerce ministry officials.

TBS Illustration

Net foreign direct investment in Bangladesh from major investor countries, the US and China, nosedived last year as rising interest rates in the global market and high volatility in exchange rates in the local market deterred overseas investors and created capital outflow pressure.

The higher outflow of foreign capital than inflow due to interest rate hike by the Federal Reserve Bank of America resulted in negative growth in equity capital investment in Bangladesh, which ultimately waned the country’s foreign exchange reserves.

China emerged as the largest source of loans for Bangladesh in 2020 and 2021, but net FDI from the country witnessed a sharp decline of 118% last year, falling from $407.88 million in the previous year to $186.61 million in 2022, according to data from the Bangladesh Bank.

In contrast, capital outflow from Bangladesh reached $153 million last year, surpassing that of other countries and exceeding the previous year’s amount by over five times, as reported by the central bank.

The United States, previously the largest source of foreign investment, slipped from the top position due to a decrease in net foreign direct investment, making way for the UK as the leading investor in 2022. Nevertheless, the US maintained its top position in terms of equity capital investment, as indicated by Bangladesh Bank data.

Net foreign investment from the US declined by 39.57% to $354 million last year, while net equity capital investment from the country amounted to nearly $300 million.

China ranked third highest source country of equity capital investment for Bangladesh last year with $105 million, according to data from the central bank.

Additionally, loans from the US decreased by 13% to $699 million year-on-year in 2022, as per central bank data.

Mezbaul Haque, executive director and spokesperson of the Bangladesh Bank, attributed the decline in overseas capital investment to a rise in interest rates in the global market, which limited cash flow for foreign investors.

He stated that the current interest rate made new investment projects less viable when considering future return projections.

Mezbaul further noted that the exchange rate was highly volatile last year, which posed a risk for investors when making investment decisions, resulting in a decline in capital investment from overseas investors.

Regarding the significant decline in Chinese investment, he explained that it was due to the retrieval of intra-company loans. Typically, foreign companies operating in Bangladesh acquire working capital from their parent companies, but foreign investors started repatriating their loans to invest in more lucrative instruments in the global market after the rate hike by the Federal Reserve Bank, he added.

The US central bank hiked the benchmark rate to between 5% and 5.25%, the highest in 16 years, up from near zero in March 2022. The European Central Bank also raised rates following the US to curb inflation.

The rise in the fed rate created a dollar crisis in Bangladesh, compelling the central bank to devalue the Taka by more than 17% last year, taking the price of $1 to Tk109.

The high fluctuation in dollar rate and fall in capital investment caused faster erosion of reserve landing it to $23.56 billion on 12 July which was nearly $40 billion in July last year.

Data from the Bangladesh Bank reveal that total net equity capital investment decreased by 10% to $1 billion last year, mainly due to the decline in net investment from the US and China. The growth in net equity capital investment was 35% in 2021.

However, net foreign direct investment increased by 20% to $3.4 billion in 2022, driven by a 61% growth in reinvested earnings.

Intra-company loans, another component of net foreign direct investment, also saw a decline of 129.6% last year as foreign companies retrieved their loans to invest in other markets.

Other countries, including India and China, also experienced capital outflows last year due to rate hikes by the US Federal Reserve Bank.

Despite the sharp decline in investment from the US and China, other top investor countries such as the UK, Malaysia, and the Netherlands contributed to the overall growth in net investment in Bangladesh.

The steep fall in capital investment from China was recorded even after the government allocated an economic zone to attract Chinese investors.

Al Mamun Mridha, secretary general of the Bangladesh China Chamber of Commerce and Industry (BCCCI), explained that Chinese investors faced difficulties in setting up their investments due to movement restrictions and prolonged flight suspensions during the pandemic in 2020.

Additionally, the lack of infrastructure development in the economic zone, despite its allocation by the government a few years ago, hindered investments.

There were some complications long pending in developing the economic zone and the BCCCI sat with Bangladesh Economic Zones Authority (Beza) to resolve the issues, he said.

Mamun expressed optimism that many Chinese investors would invest in the economic zone once infrastructure development is completed.

How Chinese investment turns into loans

The investment pattern of China indicates a deepening economic partnership between the two nations through loans, which Bangladesh will be required to repay.

Recent data from the central bank reveal that China dropped to the eighth position as the largest source of FDI, down from its previous second-place position. China’s share in total net FDI decreased to 5.4% from 14%.

However, despite the decline in FDI, China maintains its position as the top creditor among the top 20 countries. Over the past two years, loan inflows from China have increased fivefold, leading to a significant influx of Chinese loans into the private sector. In the last year alone, long-term loans from China to the private sector rose by 34% to reach $2.33 billion, as per central bank data.

As a result, China’s share of the private sector’s long-term external debt surged to 30% of the total $7.89 billion in loans received last year, up from 7% in 2020.

In 2020, China was the fifth-largest creditor country with $422 million in loans, whereas the US held the second position. However, since 2021, China has become Bangladesh’s primary source of loans, with the loan inflow continuously increasing and reaching $2.46 billion this March, according to central bank data.

The high loan inflow in the private sector in both the long and short terms mostly backed by China created huge payment pressure for the Bangladesh Bank from the beginning of this year, causing a fast erosion of foreign exchange reserves.

Private sector external debt by maturity reveals that at the end of December 2022, short-term debt up to one year occupies a major share of 67.53%, and long-term debt of more than one year accounted for 32.47% in total private sector external debt of $24 billion.

The country’s banking sector has been experiencing higher outflow than inflow in foreign currency due to repayment pressure of private sector short-term foreign loans when external borrowings of banks declined substantially after Moody’s downgraded the banking system.

According to Bangladesh Bank data, the repayment amount of the private sector’s external short-term debt stood at $11.40 billion in four months from January to April of 2023, which was nearly $3 billion higher than external borrowings of $8.5 billion.