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The Centre for Policy Dialogue (CPD) has proposed introducing an excise duty of Tk10 on each stick of cigarettes.

It also called for eliminating the tiers of cigarette taxation and replacing those with a single universal system, while presenting recommendations for the budget of the next fiscal year 2023-24 on Monday (27 March).

The specific excise duty, which is fixed per stick or per pack, could be implemented instead of an ad valorem tax.

Currently, the government charges Health Development Surcharge, supplementary duty and VAT on tobacco products.

Cigarettes are also taxed according to four tiers – Low, Medium, High and Premium.

Apart from cigarettes, the CPD has proposed a specific excise duty Tk3 on per stick of bidi and Tk6 on per gramme of Jarda and Gul, the CPD said on Monday (27 March).

It also suggested a specific excise duty on Jarda and Gul be increased by Tk1 each year to account for annual inflation and economic growth.

Besides, the think-tank proposed increasing the Health Development Surcharge from 1% to 5%.

The VAT on cigarettes and other tobacco products should be increased from 15% to 20% in FY24, the CPD suggested.

The effective tax for publicly-listed tobacco companies decreased by 1 percentage point in 2022, it said.

The CPD proposed the corporate tax on all companies manufacturing tobacco products to be increased from 45% to 50% in FY24

For soft drinks and energy drinks, the CPD has recommended a specific excise duty of Tk0.10 per ml or Tk100 per litre.

Belgian businesses have a wide range of investment opportunities in Bangladesh, from high-end apparel to fourth industrial revolution (4IR) technologies, said Bangladeshi lawmakers and business leaders at a seminar on Monday.

“Belgian investors can substantially invest in our high-end RMG, medical equipment, automobiles, electronics, trade logistics, agro-processing, construction, maritime economy, Information Technology Enabled Services (ITES) and 4IR technology above all 100 economic zones and 28 hi-tech parks,” said Dhaka Chamber of Commerce and Industry (DCCI) President Md Sameer Sattar.

Wallonia Export Investment Agency and Flanders Investment and Trade, the Trade Promotion bodies of Belgium organised the seminar titled “Innovative Business Opportunities from Belgium” at Pan Pacific Sonargaon Dhaka.

“Belgium is our 14th largest export destination and bilateral trade has reached $1.035 billion where Bangladesh’s export was $900 million and import was $135 million. Which can be enhanced to $2 billion rationalising the trade gap,” added Sameer Sattar.

Speaking as a keynote speaker, Information and Broadcasting Minister Hasan Mahmud said Belgium investors can invest in the IT sector that would be the best innovative sector in Bangladesh.

In a response a question from journalists, he said, “We hope this business delegation will help to bring about $1 billion investment in Bangladesh from Belgium.”

Political stability is necessary to bring any FDI, which has been continuing for the last 15 years, added the minister.

DCCI President Sameer Sattar further said apart from traditional items, bicycle, RMG, ceramic, home textile and jute goods can be imported from Bangladesh.

He also urged private sectors of two friendly nations to explore mutually beneficial business options.

“More Belgian investments in our promising export sectors can be made to re-export to the regional, Africa and European market under the market diversification initiative,” he added.

In his concluding remarks, Arif Dowla, consul of Belgium in Bangladesh and managing director at ACI Ltd, said, “Our country has a tremendous need for economic development as we are scheduled to graduate from LDC by 2026.”

Some frontier technology companies come to Bangladesh, he said, adding that Belgian technology may be helpful to move to the next level.

Belgium technologies are very relevant to move the next level of Bangladesh, added Arif Dowla.

Didier Vanderhasselt, ambassador of the Kingdom of Belgium to India, Bangladesh and the Maldives, has given a welcome speech at the event.

A 10-member business delegation from Belgium arrived in Dhaka on 27 March to explore the Bangladesh market. The delegation represents technologies for different sectors, including agro, medical, utilities, transport, and construction.

The delegation will stay in Bangladesh till 31 March.

Infographic: TBS

The Center for Policy Dialogue (CPD) has recommended a budget for the next fiscal year that emphasises economic recovery and stability by tackling macroeconomic challenges and risks.

“As the global economic situation is improving and global commodity prices are cooling down, there is hardly any room to blame the global volatility for the ongoing challenges confronting the Bangladesh economy,” said CPD Executive Director Dr Fahmida Khatun while presenting the organisation’s review of Bangladesh’s situation and recommendations for the budget of the fiscal 2023-24 at the CPD office in the capital on Monday.

Suggesting a budget that can weather “storms and risks” in the macroeconomic environment, Fahmida Khatun said, “The weakness within the economy has become apparent and the Ukraine war should no longer be used as an excuse for everything. A lack of internal governance and reforms has weakened the economy.”

In order to recover the economy and restore stability to the macroeconomy, she said, the government has to take bold steps like the formation of a Banking Commission and reform of the revenue sector in the next budget.

She, however, expressed doubts about how many steps the government will be able to take in the budget of the election year.

Stating that the socioeconomic indicators of the country have become very weak, Fahmida said revenue collection in the first six months of the current financial year is not at all comforting. Around Tk75,000 crore shortfall in revenue collection may occur in the current fiscal year.

If the CPD’s forecast is correct and to meet the conditions of the IMF, a 27% growth in revenue collection will be required for the next financial year, said the CPD executive director.

“The implementation of the Annual Development Programme (ADP) has also not reached the expected level. The government is restricting the import of certain goods to save foreign currency. Hence, it will be very difficult to meet the revenue growth target,” she said.

Fahmida Khatun said net foreign financing has declined and the government borrowing heavily from the banking system, particularly from the central bank. Many banks are unable to lend due to a liquidity crunch. Currency circulation outside the bank is increasing. But people’s purchasing power is decreasing. A picture of uncertainty is emerging in the market.

“Looking at the indicators, it can be understood that the overall activity of the economy has slowed down. Although the government has taken various administrative initiatives, it has not yielded results. If such a situation continues, we may fall short in meeting the conditions of the IMF’s $4.7 billion loan,” she said, adding that it is still possible to manage the economic downturn by establishing good governance and order.

“The problems that started in the country’s economy due to the increase in the price of goods in the global market after the Ukraine war broke out have now amplified. The next fiscal budget can be the main weapon to address these problems,” she said, putting forward a set of recommendations for the budget formulation.

Special Increment for public and private employees

Research Director of CPD Golam Moazzem said it is necessary to give a special increment to all the officials and employees working in the public and private sectors to relieve the people of limited income from the effects of inflation.

Fahmida Khatun, executive director of CDP, said prices of daily essentials have increased by more than 25%, which is not apparent in the average inflation data published by the government.

“At present, a family of four members in Dhaka city has a monthly food expenditure of Tk7,131 without fish and meat (compromise diet) and the cost with fish and meat will stand at Tk22,664,” she said.

In this context, Fahmida recommended giving a 5% increment in the wages of workers of various industries, as well as forming a new wage structure for them. Apart from food aid, the CPD recommended cash incentives for the poor.

The CPD highlighted the difference in domestic and international prices of four items — rice, soybean oil, sugar and beef — and concluded that the inflation prevailing in Bangladesh now may not necessarily be imported inflation, as is commonly presumed. Rather, inflation in Bangladesh appears to be a largely domestic phenomenon.

Proposing to set the tax-free income limit at Tk3.5 lakh in the next budget, the CPD said the next slab for personal income tax, which is 5% for an additional Tk1 lakh, should be increased to Tk3 lakh to provide a cushion for the middle-income earners.

Proposing to increase the tax rate at the highest slab for personal income tax from 25% to 30%, the CPD said in FY23 the rate of investment tax rebate was fixed at 15% on the eligible amount. This means top earners receive higher tax rebate benefits and CPD proposes to withdraw the provision.

Reduce subsidy in energy sector

The CPD has recommended a reduction in subsidies on electricity and fuel in the next financial year’s budget. According to the organisation, it is necessary to adjust the price of fuel oil with the international market from next July and it should be adjusted once every month.

Research Director Golam Moazzem said the government’s subsidy in the power sector has to be paid because of overcapacity. Capacity charges have to be paid even without consuming electricity, which the government sees as a subsidy. In this situation, he recommended going for a “no electricity, no pay” method.

Criticising the government for not adjusting the price of fuel oil accordingly despite the decrease in the price in the global market, Golam Moazzem said the Bangladesh Petroleum Corporation (BPC) is now making a profit on fuel oil, which is not expected at all.

Fearing more subsidies in gas as the import of LNG began at the international market rate, he said budget allocation should be provided on a priority basis for domestic gas exploration. Promoting clean energy could ultimately help the power and energy sector out of the subsidy burden.

The CPD said a major overhaul in the structure of cash incentives for the export sector is needed, targeting the future outlook of the country’s exports. In view of promoting export diversification, FY24 may consider shifting a portion of RMG cash incentives to non-RMG products that have higher export potential.

To increase remittance, the CPD proposed to introduce a market-based exchange rate. The organisation said, at present, the exchange rate against USD is Tk113, while the remittance rate is Tk107. Such a measure would reduce the demand for cash incentives (currently 2.5%) for inward remittance.

The CPD said the fertiliser subsidy must be continued in FY24 to ensure that food production gets the utmost priority in a time of uncertainty over the global food supply.

Need more allocation for Health

The CPD proposed to increase the budget allocation and its utilisation in the health sector. It also proposed to implement a number of fiscal measures to promote public health and in turn maximise welfare for society.

Bangladesh’s budget allocation for the health sector has been less than 1% of the GDP. On the contrary, in 2017, at least 30 least-developed countries (LDCs) spent more than 1% of GDP on health.

The CPD recommended that the VAT on medicines should be exempted starting from FY26 to ensure that medicines continue to be affordable to all even after the loss of the TRIPS waiver in 2026.

The CPD proposed to impose a specific excise duty on tobacco products — Tk10 per stick of cigarettes, Tk3 per stick of Bidi and Tk6 per gram of Jarda and Gul.

The organisation proposed to increase Health Development Surcharge from 1% to 5% and the VAT on cigarettes and other tobacco products to be increased from 15% to 20% in FY24.

The CPD proposed to increase the corporate tax on all companies manufacturing tobacco products from 45% to 50% in FY24.

For soft drinks and energy drinks, CPD recommends that the government should put a specific excise duty of Tk0.10 per millilitre or Tk100 per litre.

VAT on English medium schools should be exempted

The CPD proposed the withdrawal of VAT on tuition fees for English medium schools in FY24, saying the existing VAT puts an additional burden on the parents of middle-income households.

English Medium Schools follow the international curriculum and their students are assigned to read imported foreign books. At present, the total tax incidence on imported books is 73.96%.

“This puts further strain on families from middle-income households and impedes the efforts made in order to achieve the sustainable development goal (SDG) four, which aims for inclusive and quality education for all. Therefore, all taxes on imported foreign books should also be exempted in FY24,” said CPD Executive Director Fahmida Khatun.

The allocation for education in the budget has decreased from 14% in FY10 to 11.7% in FY23 and the budget utilisation has been decreasing over the years. Therefore, it is necessary to not only increase the budget allocation and utilisation but also to undertake a variety of fiscal policies to encourage better education, Fahmida Khatun added.

The volatile foreign exchange market turns out to be a blessing for remitters, but a challenging impediment for importers and eventually consumers.

According to bankers, remitters are receiving as much as Tk114 for a dollar along with a 2.5% cash incentive from the government.

This rate is much higher than the Tk107, agreed upon by the Bangladesh Foreign Exchange Dealers Association (Bafeda) and the Association of Bankers, Bangladesh (ABB) in September last year.

Out of the country’s 61 banks, at least 20 are offering higher rates for a dollar than the agreed rate in order to meet the demand for the greenback.

But they are not showing their actual offered rates in balance sheets, a number of top bankers and treasury officials, who chose to remain anonymous, told The Business Standard.

The banks which are not offering higher rates are receiving fewer remittances.

“You can see it in banks’ monthly inward remittance flow. A bank that channelled $2 million in February last year, fetched a whopping $45 million in February this year mainly because of offering higher rates,” the head of the treasury department of a private bank told The Business Standard (TBS).

“Nothing significant happened in these banks over the last year which will increase their remittance flow more than 20 times. Higher rates are behind the surge, which is destabilising the forex market,” he added.

Infographic: TBS

Bangladesh Bank data shows all the banks of the country together brought in remittances of $1.56 billion in February, up 4.47% year-on-year.

However, the bank-wise picture of the year-on-year growth is widely uneven. Some banks have exceeded 100% year-on-year growth and a couple of them showed a growth of over 1,000%, according to central bank data.

On the other hand, some banks saw a significant decrease in remittance income compared to the same period last year, as they declined to offer a higher exchange rate for the dollar.

Earlier, the ABB and Bafeda in a meeting on 11 September last year fixed Tk108 per dollar of remittances. The initiative was taken after the rate went up to Tk114-115 with each bank offering different rates. To control it, a fixed rate was agreed upon under the direct supervision of the central bank. Later, the rate was reduced to Tk107 in two phases. This was followed by a drop in monthly remittance inflow by around $500 million.

However, in January this year, some banks began increasing their remittance exchange rates. Bafeda and ABB in a joint meeting on 18 January warned banks not to offer more than they agreed in September. Letters were also sent to the managing directors of all banks. In response, some banks stopped bringing remittances at higher rates, but others continued to offer higher rates.

The number of banks, offering high rates, has increased in March with the rest planning to follow suit. To address this issue, a meeting of the executive committee of Bafeda was held last Friday.

How are banks paying high rates for remittance?

Banks are resorting to various strategies for paying higher rates for dollar against remittance, said senior officials of at least seven banks.

“For instance, some banks deliver the excess amount, resulting from paying above the rate of Tk107 per dollar, to exchange houses separately,” a deputy managing director of a private bank told TBS.

According to this strategy, the bank first comes to an agreement with the exchange house to buy dollars at a higher price than the fixed rate. The exchange house keeps the rate at Tk107 in the ledger while delivering the dollars sought by the bank, even though the bank agreed to the rate of Tk112-114, he said.

The bank then pays the remaining amount (calculated on the difference between Tk107 and Tk112-14 per dollar) to the exchange house in cash or through a bank transaction. At present, a large proportion of those buying remittances at higher rates follow this method, the bank official said.

Many banks are showing this extra payment as “other expenses” in the balance sheet but in reality, channelling remittances at higher rates. This is how banks are able to show a rate of Tk107 per dollar in reporting to the central bank, the official added.

An official of the treasury department of another bank that is bringing remittances at a high rate told TBS that it is not possible to fetch remittances at Tk107 in the current market and by forcing a rate will throw the market further into trouble.

Between September and December last year, monthly inflow of remittances was around $1.5 billion, down from $2 billion in previous months’ average, due to lower exchange rates. Remittances rose again to around $2 billion in January due to higher rate, he said.

“Besides, according to the conditions of the IMF, our foreign exchange reserves must be increased by about $3 billion by next June to get the next instalment of the $4.7 billion loan. All in all, keeping the remittance dollar rate fixed at Tk107 will reduce our foreign currency flow,” the treasury official added.

How are banks charging up to Tk115 for settling LCs?

Several importers told TBS that many banks are charging up to Tk113-115 for opening import letters of credit (LCs). But, as per the rules, there is no scope to charge a rate above Tk108.

Banks on the other hand are saying that they have to charge more as they are buying at high rates.

Even though banks are charging higher rates for LCs, they are not showing it on their logbooks and resorting to various techniques to conceal it.

Some banks are creating fake loans against the customers to adjust the additional money off the high LC dollar rate, said the treasury official, adding that in this way, 9% interest is charged against fake loans to the customer who settled the LC. This loan money is deposited in the current account of the bank.

How are exporters hiking the dollar rate strategically?

Biswajit Saha, Director of Corporate and Regulatory Affairs at City Group, said, “We are not even getting a dollar for Tk 113-114. Almost all banks are offering a rate of Tk115-116.

“We are obligated to make payments, so we are forced to buy dollars at a higher price,” he told The Business Standard.

A businessman wanted to open an LC to import fruits including apple, grape, and orange from Bhutan. Being a sight LC, the cost of these products was to be paid within 15 days of the opening of the LC. However, the businessman was not getting dollars from the banks at the Bafeda-fixed rate. Later, the importer opened the LC with a private bank on the assurance that the “dollars equivalent to the payment would be brought from an apparel exporter”. This entire process of payment has been done in accordance with the central bank policy, but technically.

A senior officer of the treasury department of the concerned bank involved in the process told TBS, “In this process, the fruit importer himself managed the RMG exporter offering to pay Tk114 per dollar. Later the exporter talked to his bank to encash the proceeds with the condition that the dollars will be sold to another bank. The bank agreed to it as he is a big exporter. The bank then encashed $1 million at the Bafeda-fixed rate of Tk104 and sold it to the importer’s bank at the rate of Tk105. The importer’s bank then sold the dollar to the fruit importer at the rate of Tk106.”

As per the initial agreement between the importer and the exporter, the importer paid Tk80 lakh separately to the exporter an extra Tk8 per dollar, the official said.

In this process, several major exporters are increasing the dollar rate of export proceeds. But small exporters are not able to take advantage of this. They are forced to encash the dollar at the rate of Tk104 fixed by Bafeda.

Who will take action against banks?

It is not yet clear which authoritative body is responsible for taking action against banks that are providing higher rates on remittance.

ABB and Bafeda have not issued any direct statement in this regard. But the organisations wrote to the bank MDs at different times, saying all authorised dealer (AD) banks must comply with the decisions taken in the joint meeting of Bafeda and ABB. Any violation of the above by any bank will be viewed and dealt with strictly by the regulator.

Several office bearers of Bafeda, wishing not to be named, told TBS that Bafeda does not have the authority to take action against any bank. Only the Bangladesh Bank can take measures in this regard.

A committee member, who attended the meeting on Friday, said that although all banks are following the agreed exchange rate for export proceeds, some banks are giving more than the specified rate for remittances.

“We have been hearing such complaints for a long time. As some banks are breaching agreed rates, the central bank has been officially informed of the issue, and it will take appropriate measures,” he said.

On the other hand, the central bank says that ABB and Bafeda will take action against the respective banks if the fixed exchange rate of dollar is not followed.

Bangladesh Bank Spokesperson and Executive Director Md Mezbaul Haque told TBS that banks had $3.6 billion at the end of Tuesday (21 March).

“If there is enough supply of dollars, then why would the banks buy dollars at a higher rate? The central bank did not fix this rate, ABB and Bafeda did. Therefore, if any action is taken in this regard, they have to take it,” Mezbaul Haque added.

Banglalink Digital Communications Limited – the third-largest telecom service provider in the country – is keen to raise Tk900 crore from the stock market.

To this end, the company, which has a paid-up capital of over Tk8,000 crore, will offload 10% of its shares at a face value of Tk10.

Once listed, it will be the company with the highest paid-up capital in the stock market, according to officials at the Bangladesh Securities and Exchange Commission (BSEC).

At the same time, Banglalink will be the third multinational telecom service provider to get listed on Bangladesh’s stock exchanges.

On Tuesday, senior Banglalink officials led by VEON Chief Executive Officer Kaan Terzioglu held a meeting with BSEC Chairman Shibli Rubayat-Ul-Islam to discuss the listing procedures.

Banglalink is fully owned by Malta’s Telecom Ventures Ltd (previously Orascom Telecom Ventures Ltd), a 100% owned subsidiary of Global Telecom Holding, which is, in turn, a subsidiary of the Dutch holding company VEON.

BSEC Commissioner Shaikh Shamsuddin Ahmed told The Business Standard, “The company wants to raise around Tk900 crore through an initial public offering (IPO) under the fixed price method.”

“The commission is eager to enlist it despite having some indications of weakness in the financial health of the company that needed to be addressed,” he added.

Earlier, multinational telecom service providers Grameenphone and Robi Axiata got listed on the country’s capital market in 2009 and 2020, respectively, by issuing 10% shares each.

Launched in February 2005, Banglalink has recently reached the landmark of 4 crore subscribers.

It has reported a 12.1% growth in revenue for 2022.

Its revenue grew to Tk5,347 crore, up from Tk4,794 crore, while its data revenue grew by 26.6% in 2022.

Taimur Rahman, chief corporate and regulatory affairs officer of the company, said, “Banglalink has been a catalyst for making telecom services affordable for the masses. It has been consistently performing well, and the recent result indicates a strong foundation for future sustainable performance.

“With double-digit revenue growth and an exceptional digital services offering in the market, Banglalink is now serving more than 40 million customers nationwide.”

“VEON sees a long-term opportunity in Bangladesh and would like to make the people of Bangladesh a part of Banglalink’s success story. In line with this, VEON had a good discussion with the BSEC and would be working together to explore future opportunities,” he added.