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REVIEW OF

BANGLADESH NATIONAL BUDGET


FY18
BUDGET HIGHLIGHTS (FY18)

Table-1: Budget Overview FY18


o The 46th National Budget of Bangladesh and 11th by Finance Minister
FY'18 (BDT bn) R. FY17 (BDT bn) Growth FY'17 (BDT bn)
Budget Size 4002.66 3171.74 26.20% 3406.05
AMA Muhith has been proposed on 1st June, 2017
% of GDP 18.0% 16.2% 17.4% o Largest Budget in the history of Bangladesh
Target Revenue 2879.91 2185.00 31.80% 2427.52 o Budget Size: BDT 4002.66 bn ( 26.20% than R.FY17)
Budget Deficit 1122.75 986.74 13.78% 978.53 o Target: GDP Growth 7.4%; Inflation 5.50%
Bank Borrowing 282.03 239.03 17.99% 389.38 o Revenue Target: BDT 2879.91 bn ( 31.80% than R.FY17)
Ext. Borrowing 519.24 287.71 80.47% 363.05 o Expenditure Composition: Dev. Exp. 39.73%, Non-Dev. Exp. 51.75%
o Budget Deficit is 28.05% of expenditures

Table-2: Budget Structure FY 2017-18 o Highest Sector Allocation: Education (16.40%), Public
FY'18 (BDT bn) R FY'17 (BDT bn) Growth FY'17 (BDT bn)
Administration (13.60%),Transportation (12.50%)
Revenue Earnings : 2879.91 2185.00 31.80% 2427.52 o Highest Growth in Sector Allocations: Public Services (
NBR Tax Revenue 2481.90 1850.00 34.16% 2031.52 60.96%), Fuel & Energy ( 45.03%), Economic Services ( 43.27%)
Non-Tax Rev 311.79 262.39 18.83% 323.50
Non-NBR Tax Rev. 86.22 72.61 18.74% 72.50
Public Expenditure: 4002.66 3171.74 26.20% 3406.05 Proposed Budget Size (BDT, bn) & Growth (%)
Non-dev. Exp. 2071.38 1781.54 16.27% 1889.66 4,300 17.8% 18. 0%

Proposed Budget 4,003


Dev. Exp. 1590.13 1159.9 37.09% 1170.27
Gr. Proposed
ADP 1533.31 1107.00 38.51% 1107.00 3,800 17.5%
17. 0%

16.0% 3,406
Others 341.15 230.3 48.13% 346.12 16. 0%

3,300
Budget Deficit : 1122.75 986.74 13.78% 978.53 2,951 15. 0%

Financing: 15.4%
2,800
Domestic Sources 603.52 699.03 -13.66% 615.48 2,505 14. 0%

Bank Borrowing 282.03 239.03 17.99% 389.38 2,300


2,225
12.6%
Non-Bank 321.49 460.00 -30.11% 226.10
13. 0%

Ext. Borrowing 519.24 287.71 80.47% 363.05 1,800 12. 0%

FY14 FY15 FY16 FY17 FY18


3
BUDGET ACHIEVEMENT (FY17)

o Revenue Income: Revenue collection target has been


revised 9.99% downward to BD 2185.0 bn (11.2% of GDP).
Table-3: Budget Achievement FY 17
Achievement up to March 17:
R. FY'17 Ach. (% of R. Actual Up to FY'17 (BDT Ach. (% of
(BDT bn) FY17) March 17 bn) FY17) o NBR Tax Revenue was 65.20% of Revised FY17 budget
Revenue Earnings : 2185.00 65.20% 1424.59 2427.52 58.68% o Non-Tax Revenue was 62.30% of Revised FY17 budget
o Non-NBR Tax Revenue was 59.44% of Revised FY17 budget
NBR Tax Revenue 1850.00 65.84% 1217.97 2031.52 59.95%
Non-Tax Rev 262.39 62.30% 163.46 323.50 50.53% o Public Expenditures: Public expenditures has been revised
Non-NBR Tax Rev. 72.61 59.44% 43.16 72.50 59.53% 6.88% downward to BD 3171.74 bn (16.2% of GDP)
Public Expenditure: 3171.74 47.08% 1493.33 3406.05 43.84% Achievement up to March 17:
Non-dev. Exp. 1781.54 58.66% 1045.14 1889.66 55.31% o Non-development expenditures was 58.66% of R.FY17
Dev. Exp. 1159.9 29.12% 337.8 1170.27 28.87% o Development Expenditures (incl. ADP) was 29.12% of R.FY17
ADP 1107.00 30.20% 334.36 1107.00 30.20% o ADP was 30.20% for both Revised FY17 budget and
Others 230.30 47.93% 110.39 346.12 31.89% Proposed FY 17 budget as there is no revision for ADP
Budget Deficit : 986.74 6.97% 68.74 978.53 7.02% expenditure for the 1st time
Financing:
Domestic Sources 699.03 6.13% 42.83 615.48 6.96% o Budget Deficit: now stands at BDT 986.74 bn (5.04% of
Bank Borrowing 239.03 -164.02 389.38 - GDP) which will be financed from Domestic Sources (actual
Non-Bank 460.00 44.97% 420.98 196.10 91.49%
Ext. Borrowing 287.71 8.73% 25.11 363.05 6.92%
borrowing up to March 17 was 6.13% of Revised FY17
budget and External Borrowings (actual borrowing up to
March 17 was 8.73% of Revised FY17 budget).
o As sale of savings certificate (non-bank borrowing) has
increased substantially (BDT 421 bn against target of BDT 196
bn), bank borrowing would decline

4
UNDERLYING ASSUMPTIONS OF
BUDGET (FY18)

GDP growth rate will be 7.4 percent in FY 2017-18 and inflation will come down to 5.5 percent by the end of the fiscal
year
Interest rates will fall gradually and nominal exchange rate will remain stable
Internal absorption will increase significantly in comparison to the previous year due to increased consumption and
investment expenditure. As a result, there will be a small deficit in the current account balance. However, overall balance will
be positive due to adequate surpluses of capital and financial accounts
The central bank will continue to pursue supportive monetary and credit policy
Tax-revenue will increase by 1.7 percent of GDP. Tax net will be expanded and the new Value Added Tax law will be
implemented.Tax exemption and tax holiday facilities will be withdrawn gradually
Foreign aid disbursement will increase
Recovery of global output growth will continue and exports and remittances targets will be achieved
Over and above, people's perseverance and peasants' and workers' passion for work will help sustain political stability

Observation: Some of the above assumptions may not be materialized as proposed, which may have impact on the budget
achievements by the end of FY18.

5
TARG ETED EC O N O MIC IN DIC ATO R S

GDP Growth Rate (%) Target GDP Growth (FY18): 7.40%


7.5 7.30 7.20 7.40 Achieved GDP Growth (FY17): 7.24% against target of 7.20%. Robust
7.20 7.20 domestic demand along with recovery in external demand contributed to this
7.00 7.00
7.0
7.24
growth.
6.70 Favorable monetary and fiscal policy to continue to develop power, energy,
6.52 6.55
6.5 7.11
communication and other infrastructure sectors
6.46 Unstable political situation before the upcoming election (FY19) and pressure on
6.01 6.06
6.0
export & remittance may impact the ambitious growth targets of FY18
Actual Targated

5.5
Target Inflation (FY18): 5.50%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Inflation (FY17): 5.39% (up to March 17) against target of 5.80%
Food inflation has shown upward trend in recent months, while non-food
Inflation Rate (%) inflation has shown downward trend in recent months.
Inflation (General)
Any unfavorable change in fuel/ power prices may adversely impact the inflation
14.0
Target rate targets
10.62
Global agricultural commodity prices are anticipated to remain broadly stable in
11.0
2017, with moderate increases in oils and industrial commodities
7.40 6.20
8.05
8.0 7.00
8.69
7.35
5.80 5.50 Table 4: Per Capita GNI, Food & Non-Food Inflation
6.78 6.40
5.0 5.92 FY13 FY14 FY15 FY16 FY17*
5.39
Per Capita GNI (USD) 1,054 1,184 1,316 1,465 1,602
Inflation (Food)-% 5.22 8.57 6.67 4.91 5.20
2.0
FY12 FY13 FY14 FY15 FY16 FY17 (Jul- FY18 Inflation (Non-food)-% 9.17 5.54 5.99 7.47 5.67
Mar) *Food and Non-Food inflation in FY17 has been shown up to March of FY17
6
KEY EC O N O MIC IN DIC ATO R S (C O N T D)

Broad Money (M2) as % of GDP Achieved Broad Money (M2) Growth (FY17): 13.08% (up to March 17)
54 against target of 15.5%
52.80
53 52.10 52.00
52
Broad Money (M2) as % of GDP or Financial Deepening: 49.3%
51 50.30
50 49.3
compared to 52.8% in FY17; yet to meet the target of FY17.
49.00
49 It refers to liquid money and the more liquid money is available in an economy,
48 the more opportunities exist for continued growth. Financial deepening plays an
47
FY12 FY13 FY14 FY15 FY16 FY17 important role in reducing risk and vulnerability for disadvantaged groups, and
increasing the ability of individuals and households to access basic services like
Broad Money (M2) Growth (%) health and education, thus having a more direct impact on poverty reduction.
17.40
18 16.70
16.10
16
Target Total investment as % of GDP (FY18): 31.9% (23.3% Private
13.60 Investment and 8.6% public investment)
14 13.08
12.40 Total Investment as % of GDP (FY17): 30.27%
12 Private investments are very important for long-term sustainable growth of the
FY12 FY13 FY14 FY15 FY16 FY17 (Jul-Mar)
economy. However, there seems less optimism by the Govt. for private
Investment as % of GDP investment contribution to GDP in FY18.
28
22.16 22.50 21.75 22.03 22.07
21.78 Execution of ADP falls short of expectation every year as there is still lack of
23 23.01
implementation capacity. The reason behind this is the insufficient public
18
investment though Govt. is trying to raise public investment. Foreign aid
13 utilization rate is fairly low. However, considering recent ADP program taken by
8 7.26 Govt., it is expected that public investment will be stepped up.
6.64 6.82
3 5.26 5.76 6.55 7.60
FY11 FY12 FY13 FY14 FY15 FY16 FY17
Public Investment Private Investment
7
1 Growth of Broad Money (M2) of FY 17 has been calculated based on 9 months figure up to March, 17
KEY EC O N O MIC IN DIC ATO R S (C O N T D)

16
13.75 13.67
13.10
Achieved spread between deposit and lending rate (FY17):
14 12.42
11.67 4.69% (up to March, 2017) against targeted <5% Spread.
12 10.39
10
5.60 5.13
5.31
9.70 At the end of March 2017, the rate of interest on deposits and loans
5.15

8
4.87 dropped to 5.01 and 9.70 percent respectively.
8.54 4.85
6 7.27
8.15 7.79
6.80
4.69 Market interest rates (deposit rates and lending rates) are expected
4 5.54 5.01 to follow the downward trend as before.
Deposit Rate (%) Lending Rate (%)
2 Policy rates will remain unchanged and increase of efficiency and
FY11 FY12 FY13 FY14 FY15 FY16 FY17 (JUL-
MAR) competition among financial institutions will be retained.
Call Money Rate (%)
18 Call Money Rates continued the downtrend in the last few years
13 11.16
12.82
and are at reasonable position.
7.17
8 6.25 5.79
3.70 3.83 Achieved Growth of Pvt. Sector Credit (FY 17): 10.08% (up
3 to March 17) against targeted 16.5%.
FY11 FY12 FY13 FY14 FY15 FY16 FY17
It is expected by Govt. that lower lending rate will continue the
Pvt. Sector Credit Growth (%)
positive trend in domestic (Public and Private) credit. Thus it may
25
increase the investment in forthcoming periods.
19.72
20 16.78 Growth of total domestic credit has slowed down due to decline in
12.27 13.19
15 10.85 10.08 public sector borrowing. However, growth of private sector credit
10
5 flow is much closer to the target. Besides, the flow of agricultural
FY12 FY13 FY14 FY15 FY16 FY17 (Jul-Mar) and industrial credit remains uninterrupted.

8
1 Call Money rate of FY 17 is as of 24th May 2017 2Growth of Pvt. Sector credit of FY17 has been calculated for the 9 months (Jul-mar) of FY 17
KEY EC O N O MIC IN DIC ATO R S (C O N T D)

Exchange Rate (%) Taka has depreciated against Dollar recently. Demand for dollar
85 81.82
78.40
80.54 increased slightly due to increase in import expenditure and other factors.
77.76 77.63 77.80
80
74.15 Export competitiveness will increase while imports will become expensive.
75
Govt. expects that nominal exchange rate will remain stable in FY18, which
70
FY11 FY12 FY13 FY14 FY15 FY16 FY17 may not be the case due to remittance and export-import pressures

Remittance (USD Bn) The achieved growth of remittance (FY17): -16.03% (up to April, 17)
17 10.24% 12.60% 15.32 14.93
15.00% against targeted 2.5% growth.
14.46
15
12.84
14.23
7.65%
10.00%

5.00%
Low oil prices, contractionary fiscal policies reduced remittance from GCC
13
10.29
0.00%
countries, weak growth in countries of Europe and Russian Federation,
11 -1.61%
-2.52% -5.00% deflation of Euro, adoption of anti-immigration policies by many countries,
9
7
-10.00%

-15.00%
various hindrances in remittance transfer, remittance through informal
-16.03%
5 -20.00% channels and controlled exchange rate policy of many countries etc.
FY12 FY13 FY14 FY15 FY16 FY17 (Jul-
Apr)
adversely affected the remittance flow.
Despite Govt. optimism, slower remittance may continue in FY18 which
Forex Reserve (USD Bn)
may depreciate the local currency further putting pressure on exchange
35 32.13
30
30.14 rate.
25.03
25 21.51
20 15.32 The achieved growth of Foreign exchange reserve (FY17): 6.6%
15
10
10.36 and it is now hovering above the USD 32 bn mark (up to May 2017)
5 Current foreign exchange reserve is adequate to meet import bill of more
FY12 FY13 FY14 FY15 FY16 FY17
than 8 months.
9
1Exchange rate of FY 2016-17 is as of 24th May 2017 2 Growth of Remittance FY 17 has been calculated based on 10 months figure up to April 17 3 Foreign Exchange reserve of FY 17 is as of 24th May, 2017. Growth of Foreign Exchange Reserve of FY 17 has been calculated based on
11 months (Jul-May) figure
KEY EC O N O MIC IN DIC ATO R S (C O N T D)

Export (USD Bn) The achieved growth rate of export and import for the (FY17):
40
11.21% 11.69% 14.00% 3.92% (up to April 2017) for export and 11.07% (up to March 2017)
34.24
35
30.19 31.21
12.00%
for import against targeted 8.5% growth for both.
9.72% 28.72 10.00%
30 27.03
24.30 8.00%
25
5.99% 6.00% Different adverse conditions in international market have created
20
3.39% 3.92% 4.00% pressure on RMG export. Decrease in global price of RMG will
15 2.00%
decrease the export earnings further but may increase the export
10
volume. However, export to European Union, one of the major export
0.00%

FY12 FY13 FY14 FY15 FY16 FY17 (Jul-Apr)


destinations of Bangladesh, has increased slightly. It is expected that
Import (USD Bn)
45 40.73 40.58 40.10
25.00% export to USA, other major export destination of Bangladesh, will
40 35.52 34.08
19.51% 20.00%
increase in this fiscal year.
35 32.53
Growth of import in FY17 was triggered by the momentum of
15.00%

30 11.07%10.00%

25 5.52% 5.00%
domestic demand mainly. Opening and disposal of LCs for importing
20 -0.37% -1.19%
0.00% raw materials and capital machinery have increased indicating enhanced
15 -4.03% -5.00% utilization and expansion of production capacity.
10 -10.00%
FY12 FY13 FY14 FY15 FY16 FY17 (Jul-Mar)
Current account balance was negative in FY17 which was positive in
previous years.
FY17 It is expected that internal absorption will increase due to increase in
FY11 FY12 FY13 FY14 FY15 FY16 (Jul-Feb) consumption and investment expenditure. This will lead to deficit in
current account balance. Balance of Payment may be positive if there is
BOP (BDT Bn) 46.51 61.10 320.12 274.27 296.37 499.62 (194.51) adequate surplus of financial and capital accounts in the next fiscal year.
Current acc.(BDT
Bn) 52.75 89.16 149.90 80.78 145.26 280.20 (126.61)
1 Growth of Export and Import of FY 17 has been calculated based on annualized figure. 10
R EVEN UE SO URC ES

Revenue Sources (BDT 2879.91 bn) o FY 18 Revenue Target: 2879.91Bn (31.80% growth over R.FY17 Revenue)
Deficit: BDT 1122.75 bn
o Deficit: 1122.75 bn (5.00% of GDP, 28.05% of Total Expenditures)
o Deviation: Historically Actual Revenue shortfalls from Targeted Revenue and
11%
3%
in FY17, that deviation was 9.99% which was 17.03% in FY16.
o Ongoing reforms & automation likely to boost NBR revenues

NBR Tax Revenue o NBR Tax Revenue: 2481.90 bn (86.18% of total revenue target, 34.16%
Non-Tax Revenue higher than R. FY17)
86% Non-NBR Tax Revenue o Non-Tax Revenue: 311.79 bn (10.83% of total revenue target 18.83%
higher than R. FY17)
o Non-NBR Tax Revenue: 86.22 bn (2.99% of total revenue target, 18.74%
higher than R. FY17)

o Too much reliance on indirect tax (VAT) continues rather than focusing on
direct tax sources; VAT affects the lives of the whole population while Direct
Deviation of Actual Revenue from Proposed Revenue Taxes affect the relatively wealthier population

-2.0% FY12 FY13 FY14 FY15 FY16 FY17


Table 5: NBR Tax Revenue-Breakdown (BDT 2,481.90 bn)
-3.12%
-7.0% FY'18 (BDT bn) R. FY'17 (BDT bn)
-8.26%
-12.0% -9.99% Value Added Tax (VAT) 912.54 (36.8%) 686.75 (37.1%)
Taxes on Income and Profit 851.76 (34.3%) 627.54 (33.9%)
-17.0% -16.17% Supplementary Duty 384.01 (15.5%) 295.19 (16.0%)
-17.03%
Import Duty 300.23 (12.1%) 215.71 (11.7%)
-22.0% -20.22% 11
Others 33.33 (1.3%) 24.77 (1.3%)
FINAN C IN G SO URC ES

o Deficit: BDT 1122.75 bn (5.00% of GDP, 28.05% of Expenditures); Increased


Budget Deficit Financing (BDT 1122.75 bn) by 13.78% as compared to R.FY17 Budget.
o Bangladesh budget deficit is one of the highest amongst SAARC countries
Bank o External Borrowing: BDT 519.24 bn, 2.3% of GDP (80.47% increased as
Borrowing
25% compared to R.FY17 Budget)
Domestic External o Seems too optimistic, considering efficiency and capabilities. This may put
Borrowing
Borrowing 46% pressure on domestic borrowing
54% Non-bank
Borrowing
29% o Domestic Borrowing: BDT 603.52 bn, 2.7% of GDP
o Bank Borrowing: BDT 282.03 bn, 1.3% of GDP (17.99% increased as
compared to R.FY17 Budget)
External Borrowing Non-bank Borrowing Bank Borrowing o Non-Bank Borrowing: BDT 321.49 bn, 1.4% of GDP (30.11%
decreased as compared to R.FY17 Budget)
Budget Size vs Budget Deficit o Deficit may be higher than projected by the end of FY18
4,500
Proposed Budget Deficit 4,003
4,000 Budget Deficit in SAARC Countries
3,406
3,500 8.0% 7.40%
2,951 7.0%
3,000
2,505 6.0%
2,500
5.30% 5.00%
2,225 4.70%
5.0%
2,000
4.0% 3.20%
1,500 3.0% 2.40%
1123
872 979 1.70%
1,000 676 2.0% 1.40%
550
500 1.0%
0.0% 12
-
India Pakistan Srilanka Nepal Bhutan Maldives Afghanistan Bangladesh
FY14 FY15 FY16 FY17 FY18
EX PEN DITUR ES - OV ER ALL

Fund Allocation (BDT 4002.66 bn)


o Total Expenditure: BDT 4002.66 bn (26.2% increase, over R.
FY17 budget, 18.0% of GDP)
Non-development
o 52% is allocated to non-development expenditure, while
8%
Expenditure 40% has been allocated to development expenditure
Development Program
52%
40% o Overall Expenditure Framework:
Others
o Physical infrastructure (31.74%)
o Social Infrastructure (29.31%)
o General Services (24.03%)
o Interest Payments (10.36%)
o Net Lending and Others (2.69%)
o PPP (1.88%)
Overall Expenditure Framework

2% o Top Sector Allocations:


10% Physical infrastructure o Education (16.4%)
3%
Social Infrastructure o Public Administration (13.6%)
32%
General Services
o Transportation (12.5%)
o Interest Payments (10.3%)
24% Interest Payments
o Local government (6.9%)
Net Lending and Others
29% PPP

13
EX PEN DITUR ES - ALLO C ATIO N ANALYS IS

o Total Allocation growth is highest in Public


Table-6: Non-Development and Development Expenditure
Service (60.96%), Fuel and Power (45.03%),
Industrial and Economic Services (43.27%)
Total Allocation (TA) TA. % of
Ministry/Divisio ADP
GDP
TA. % of Budget o Education, transport and health sectors also got
n BDT bn significant growth in allocation
FY'18 Growth FY'18 R. FY17 FY'18 FY'18 R. FY'17 o Overall, as per budget, Finance Division has got the
301
Education 654 30.1% 175 2.9% 16.3% 15.9% highest allocation of 907 bn in FY18 (against
48
Public Service 545 61.0% 45 2.5% 13.5% 10.7% R.FY17 651 bn and FY17 841 bn)
Transport 425
501 38.1% 293 2.3% 12.5% 11.4%
Interest -
415 17.3% - 1.9% 10.3% 11.2%
Local Govt. 277 11.5%
238
212 1.3% 6.9% 7.8% o Total Expenditure as % of GDP is highest in
Defense 258 11.0%
7
7 1.2% 6.4% 7.3%
Education (2.94%), Public Service (2.45%), Transport
Agriculture 244 22.0%
89
72 1.1% 6.1% 6.3%
(2.25%)
Social Security 43
241 13.9% 42 1.1% 6.0% 6.7%
Public Order 26 o Highest ADP allocation is in Transport (BDT
229 10.3% 21 1.0% 5.7% 6.5%
Fuel and Power 210 424.95 bn), Education (BDT 301.23 bn), Local Govt.
211 45.0% 145 1.0% 5.3% 4.6%
95 (BDT 237.88 bn)
Health 207 39.3% 49 0.9% 5.1% 4.7%
31
o Top ADP Allocation (Ministry/ Division wise):
Industry 41 43.3% 17 0.2% 1.0% 0.9% o Local Govt. Division
Housing 26
37 -27.9% 40 0.2% 0.9% 1.6% o Others (under Human Resources)
Recreation 15 o Power Division
36 30.5% 9 0.2% 0.9% 0.9%
TOTAL 3,895 1,553 1,126 o Road Transport & Highways Division
o Ministry of Railways
14
EX PEN DITUR ES - ADP

Proposed ADP and ADP Growth (BDT bn, Last 5-years)


o Proposed ADP: BDT 1533 bn (38.51% increase)
1,700 42.0%
ADP Growth 38.51% o 30.20% of Proposed ADP plan was implemented in FY17 (*upto
1,500 37.0% March17) which was 93.81% in FY16. However, for the first time, ADP
has not been revised in the supplementary budget of FY17.
1,300 32.0%
o ADP implementation ranges between 75% to 95% of proposed ADP
1,100 27.0% Budget, of which most part is utilized hurriedly in the last 3 months during
21.93% the rainy season.
20.77%
900 19.76% 22.0%

o Broad Allocation: Human Resources (28.7%), Transport & Communication


700 14.12% 17.0%
(26.8%), Agriculture & Rural Development (21.2%), Power & Energy
659 803 970 1,107 1,533
500 12.0% (13.7%) and Others (9.7%)
FY14 FY15 FY16 FY17 FY18

o Total projects under ADP: 1311, of which 90 are new


ADP Composition o Timely implementation, quality of implementation and accountability will
continue to be concerns
Communication

12% Human Resources Table 7: ADP Implementation


26%
13%
Agriculture
ADP FY12 FY13 FY14 FY15 FY16 FY17 FY18
Power & Energy Proposed 37,508 55,000 65,870 80,315 97,000 1,10,700 1,53,331
24% 25%
Actual 41,080 52,366 55,333 60,376 91,000 33,436* -
Others
Implementation 109.52% 95.21% 84.00% 75.17% 93.81% 30.20%* -

15
TAX R ATES FO R IN DIV IDUALS
Table 8: Minimum Income for Individual Tax Payer
Types of Tax Payer Threshold of Taxable Income o Only change in proposed budget for Threshold of Taxable
General Tax Payers BDT 250, 000 Income is for Physically Challenged tax payers which is
Women and Senior Citizen (65 years) BDT 300, 000 BDT 400,000 now and earlier it was BDT 375,000.
Physically Challenged BDT 400, 000 o Tax exemption threshold for the parents or legal guardians of a
War-wounded Freedom Fighters (gazetted) BDT 425, 000 person with disability shall be 25,000 higher.
o Tax exemption of freedom fighter allowance, destitute allowance or
Table 9: Tax Rates for Other than Companies similar welfare allowance received from the Government or any
Threshold Tax Rate honorarium received from the freedom fighter welfare trust
On First BDT 0.25 mn Nil
o Tax exemption of any national award and any monitory benefit
On Next BDT 0.40 mn 10.0%

On Next BDT 0.50 mn 15.0% o The tax-free income ceiling to remain unchanged
o for general tax payers at BDT 0.25 mn
On Next BDT 0.60 mn 20.0%
o for Women and Senior Citizen (65 years) BDT 0.3 mn
On Next BDT 3.00 mn 25.0% o for gazzeted war-wounded the ceiling is BDT 0.425 mn
On the Balance 30.0%

For Others Tax Rate o The minimum tax payment also kept untouched
Tobacco Products Manufacturer other than Companies 45.0% o BDT 5,000 for Dhaka North, Dhaka South, and Chittagong
Non-residents (other than NRBs) 30.0% o BDT 4,000for other city corporations
Registered Co-operative Society 15.0%
o BDT 3,000 for the rest of the country

Table 10: Net Wealth Surcharge


o Besides maximum tax rate for individuals is 30.0% and
Wealth Size Proposed (Unchanged)
applicable to only when individuals income will overpass
Up to BDT 22.5 mn Nil
BDT 4.75 mn.
Exceeds BDT 22.5 mn, but less than BDT 50 mn 10.0%

Exceeds BD 50 mn, but less than 100 mn 15.0%

Exceeds BDT 100 mn, but less than 150 mn 20.0%


o Minimum surcharge of Taka 3000 will be maintained.
Exceeds BDT 150 mn, but less than 200 mn 25.0%
16
Exceeds BDT 200 mn 30.0%
C O R PO R ATE TAX R ATES

Table 11: Corporate Tax Rates

Description Existing Rates Proposed Rates


o In this proposed budget for FY18, company tax rates
(Unchanged) have been kept unchanged as that of FY17 budget
Publicly Traded Company 25.0% 25.0%
Non-Publicly Traded Company 35.0% 35.0%
o For Publicly Traded Company tax rate is 25.0% which
is 35.0% for Non-Publicly Traded Company
Publicly traded Bank, Insurance and FIs
(other than Merchant Bank)/ o Tax rates for Publicly traded Bank, Insurance and FIs
Newly established Bank, Insurance, and 40.0% 40.0% (other than Merchant Bank) is 40.0% and Non-
Financial institutions approved by publicly traded Bank, Insurance and Financial
Government in 2013
Institution (other than Merchant Bank) is 42.5%
Non-publicly traded Bank, Insurance and
Financial Institution (other than Merchant 42.5% 42.5%
o For Merchant Bank tax rate is 37.5%
Bank) o For Cigarette Manufacturing Company it is 45.0%
Merchant Bank 37.5% 37.5% o Tax rates for mobile phone operators- Publicly
Cigarette Manufacturing Company 45.0% 45.0%
Traded: 40.0% and Non-Publicly Traded: 45.0%
o On dividend Income 20.0% tax rate remain
Bidi, zarda, chewing tobacco, gul or any
other smokeless tobacco Manufacturing 45.0% 45.0% unchanged in current proposed budget
Company
Mobile Phone Operators: o Sectors including non-listed banks, non-listed
Publicly Traded 40.0% 40.0% mobile phone operators and cigarette
Non-Publicly Traded. 45.0% 45.0%
manufacturing companies, which are paying tax at
Dividend Income 20.0% 20.0% more than 40% rate will be reduced to 40% gradually
in future
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TAX PRO PO SALS

Proposed Benefits:
RMG Sector:
The corporate tax rate for the export oriented readymade garments will be reduced to 15% from 20% and
withholding tax rate on this sector will remain 0.7%.
Tax rate of a readymade garments company to be reduced to 14%, if the factory of such company has an
internationally recognized green building certification.
Infrastructure Sector:
Conditional tax exemption for infrastructure sector such as tolled national highways, expressways, flyovers,
elevated and at-grade expressways, subway constructed under public-private partnership is proposed to
attract investment in infrastructure.
Capital Market:
Tax exemption for the Bangladesh Securities and Exchange Commission in order to make a positive
impact on capital market.
Other significant proposals for facilitating growth and business and for ease of doing business include-
a) Allowing a branch office, liaison office or a subsidiary office (including a subsidiary thereof) of a foreign
parent company to maintain an income year uniform to its parent company.
b) Granting tax exemption to alternative investment fund;
c) VAT exemptions for stock exchanges and securities related services
d) Expanding the tax exemption list of information and communication technology sector.

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TAX PRO PO SALS - R EFO R MS

Introducing online submission of returns, appeal petitions, alternative disputes resolution (ADR) petitions and other
applications; issuing system generated orders, notices and certificates; and submission of accounts, statements,
documents and data by a taxpayer in electronic form or by electronic media
Introduction of e-TDS system under a central Withholding Tax Unit with required number of Withholding Tax Zones
under the central unit; Establishment of a modern and fully automated Tax Information Unit that will be connected to
other systems and database of the country, automatically gather tax related information from those interconnectivity
for the purpose of expanding tax net and combating tax evasion. Establishment of an appropriate administration setup
for the international taxes that will deal with combating cross-border tax evasion, capital flight and facilitating recovery
of such evaded tax. Establishment of new tax zones in all important districts & tax circle offices at upazilla level.

Tax/ VAT collection will be based on a functional model instead of geographical jurisdiction, officials with specialized
knowledge will work in different sections of revenue collection. Organizational restructuring and revising the status of
the officials of NBR will be done within next December 18 following the regular inter-ministerial process
Skill-based incentive and reward policy guideline for the Tax officials of the National Board of Revenue in order to
bring transparency in the tax management

VAT Online Project : online VAT Registration and Online Return submission. Sixteen VAT Online Service
Centers (VOSC) have been established in different parts of the country.
Procurement of latest technology embodied Electronic Fiscal Device (EFD) and distributing to the business community
at cost price

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TAX PRO PO SALS - VAT

Value Added Tax (VAT :


Value Added Tax and Supplementary Duty Act, 2012 will be fully implemented from 1st of July 2017. The
new VAT Act was enacted in 2012 and some of its provisions gradually came into effect. Meanwhile,
many changes have been incorporated in the Act. Under this new Act, the Value Added Tax and
Supplementary Duty Rules, 2016 has also been published in the Gazette.
Changes in the Value Added Tax and Supplementary Duty Act, 2012 and the VAT rules:
VAT will be applicable at a single and uniform rate and the rate will remain 15% as before, which will
be unchanged over the next three years.
The firms with this annual turnover upto Tk 36 Lacs will be completely out of the scope of tax. It was Tk 30 lakh
before.
The threshold for registration under VAT has been increased from Tk 80 Lacs to 1 crore 50 Lakh. Therefore,
businesses having a total yearly turnover above Tk 36 lacs and up to Tk 1 crore 50 Lacs will be able to avail the
opportunity to pay only 4% tax on their turnover.

VAT exemptions
o Proposed on 536 primary food items such as rice, lentils, fish, meat, vegetables, sugar, honey, puffed rice, maize,
wheat, liquid milk, barley, salt etc. same as before.
o In addition, 93 items of life saving drugs, public transport services, public health and medical services, education
and training services will also enjoy VAT exemption.
o 404 items of the agriculture, livestock and fisheries sector will enjoy VAT exemption same as before.
o Furthermore, non commercial activities of charitable and cultural organizations will also enjoy VAT exemption
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facility.
TAX PRO PO SALS - VAT, ED

Extension of VAT Exemption Facility for Protection and Development of Domestic Industry
VAT exemption facility to the local manufacturers of refrigerator and freezer has extended up to 30 June,
2019 instead of June 30, 2017.
VAT exemption facility to the local manufacturers of air conditioner has extended up to 30 June, 2019
instead of June 30, 2017.
VAT exemption facility to the Edible Oil (Palm oil and soya bean oil) has extended up to 30 June, 2019
instead of June 30, 2017 at the domestic production and supply stage.
VAT exemption facility to the local LPG cylinder manufacturers at the production stage has extended up to
30 June, 2019

Excise Duty on Airline Tickets


Taka 2,000 Excise Duty on airline tickets instead of existing Taka 1,000 for travel to any Asian countries except
the SAARC countries;
Taka 3,000 Excise duty on airline tickets instead of existing Taka 1,500 for travel to Europe, USA and other
countries of the world;
In order to avoid any inconvenience of travelers, this Excise Duty will be collected at the time of purchasing air
tickets.

21
TAX PRO PO SALS - C D, S D

Cigarette and Bidi:


Price of the low segment for every 10 sticks of local brand cigarette is proposed to be fixed at Tk. 27
from existing Tk. 23 and increase the Supplementary Duty rate to 52% from existing 50%.
Price of the low segment for every 10 sticks of international brand cigarette is proposed to be fixed
at Tk. 35 and the Supplementary Duty rate at 55%.
The existing tariff value of bidi is proposed to abolish. The existing Supplementary Duty rate for non-
filter bidi and filter bidi will remain unchanged at 30% and 35% respectively. The tax inclusive price
of 25 sticks of non-filter bidi at 15 Taka and 20 sticks of filter bidi at 15 Taka is proposed with effect
from 1 June 2017.
25% customs duty and 100% Supplementary Duty is proposed on e-cigarette or Electronic Nicotine
Delivery System (ENDS).

Fast Food Items:


10% Supplementary Duty at local supply stage on fast food in addition to applicable 15 percent VAT has
been proposed.

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Tubes, pipes
and fittings

Internet
Industry Insights

DEPOSIT PLASTIC & BATTERY LPG GAS HIGH SEGMENT PRICE


DECREASE DECREASE DECREASE STABLE

BANKS ENGINEERING FUEL & TOBACCO


ENERGY

COST OF FUND ROD COST SOLAR PANEL Low Segment


INCREASE INCREASE INCREASE INCREASE
Industry Insights

CEMENT CANCER & LIFE


SAVING MEDICINE CORPORATE TAX
DECREASE DECREASE
RAW MATERIAL PHARMA-
INCREASE TEXTILES
CEUTICALS
IN DUSTRY IMPAC T

Banking and NBFI Sector


No excise duty on the accounts where the balance does not exceeds 1 lakh taka at any point during the year.
Excise duty of 800 taka has been imposed on the accounts that exceeds the balance of 1 lakh taka but does not exceed 10 lack
taka.This excise duty was 500 taka for the FY 2016-17
Excise duty of 2,500 taka has been imposed on the accounts that exceeds the balance of 10 lakh taka but does not exceed 1 Crore
taka.This excise duty was 1,500 taka for the FY 2016-17
Excise duty of 12,000 taka has been imposed on the accounts that exceeds the balance of 1 Crore taka but does not exceed 5
Crore taka.This excise duty was 7,500 taka for the FY 2016-17
Excise duty of 25,000 taka has been imposed on the accounts that exceeds the balance of 5 Crore. This excise duty was 15,000
taka for the FY 2016-17
Impact: This may discourage deposits as real return will become lower to depositors. Banks and NBFIs with higher portfolio
concentration on retail products may adversely be affected. Moreover, decrease in deposit supply may enhance cost of fund of
Bank and NBFIs.
Related Listed Companies: BRAC, EBL, MERCANBANK, ONEBANK, IDLC, LANKABAFIN, UNITEDFIN, UTTARAFIN etc.
Information and CommunicationsTechnology
Reduction of duties on machineries and parts required to assemble or manufacture item like cellular phone, laptops, pads etc.
Lower S.R.O rate on Antenna, Antenna WLAN Combo, Receiver, etc. from 5% to 1% and Lithium Ion Battery from 25% to 1%.
Besides S.R.O for Flexible Flat Cable, Low Voltage serial (LVS) Cable etc. are also proposed to decrease from 25% to 1%.
Increased Custom Duty from 5% to 10% on Cellular telephones.
VAT withdrawal from all locally developed software but increased duty on imported database software from 2% to 25% and other
computer software to 10% from existing 5%.
Impact: Internet and Network Infrastructure service providing activities may become less costly. Besides local domain and
website developers may be benefitted from such increased duty.
Related Listed Companies:AAMRATECH, BDCOM, ITC,AGNISYSTEM etc.

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IN DUSTRY IMPAC T

Fuel and Energy


Zero rate on importation of photovoltaic cell used in solar production.
Increase of duty rate from 5% to 10% on the importation of complete solar module/ panel
VAT exemption facility has been extended to local LPG cylinder manufacturers up to 30 June, 2019
Raw material required to produce LPG cylinders have been given special tax expenditure-reducing duty from 10% to 5%.
Impact: Both zero rate on photovoltaic cell and increased duty on complete solar module may protect local solar producers.
Besides VAT exemptions to local LPG cylinder manufacturers and reduced duty may encourage local LPG manufacturers.
Related Listed Companies: MJLBD, NAVANACNG, SAIFPOWER etc.
Engineering Sector
Customs duty on Ferro-manganese, Ferro-selicon, Ferro-silico-manganese has been proposed to reduce down to 0.0%.
Regulatory duty on billet import has been fixed at 20.0%.
Increased C.D on Bars, rods and profiles of aluminum, Hollow profiles of aluminum from 10% to 15%, Aluminum tubes, fittings and
pipes from 1% to 10%.
S.R.O rate on thermal irresponsive glue, adhesive thermal tape has been proposed to fix at 1.0% from 25.0% besides S.R.O rate on
thermoplastic is also fixed to 1% from existing 5%.
R.D. 5% on Scrap Vessels which was 0% earlier.
Customs duty on zinc callots, arsenic, antimony has been proposed to reduce down to 5.0% from 10.0% which will benefit battery
producer.
Impact: Lower custom duty on Ferro-manganese, silicon and silico-manganese may reduce the cost of raw materials for steel
producing companies. RD on billet may protect local rod producers and lower S.R.O on thermoplastic, CD on zinc callots,
arsenic, antimony may reduce the production cost of plastic and battery. Increased CD on aluminum pipes, fittings and tubes may
increase production cost of related companies.
Related Listed Companies: BSRMSTEEL, RSRMSTEEL, BSRMLTD, GPHISPAT, BENGALWTL, BBS, KDSALTD, NTLTUBES,
BDTHAI, RANFOUNDRY, QSMDRYCELL, NAVANACNG, OLYMPIC, APOLOISPAT, WMSHIPYARD, SALAMCRST, EHL etc.

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IN DUSTRY IMPAC T

Manufacturing Sector
VAT exemption facility has been extended to local manufacturer of refrigerator, air conditioner and freezer up to 30 June, 2019
Increased SD on Beauty or make-up preparations from 45% to 50% and for Soap to 25% from existing 20%.
Impact: VAT exemptions may encourage local but cosmetic consumption may become costly.
Related Listed Companies: MJLBD, SINGERBD, KEYACOS, ACI etc.
Pharmaceuticals and Chemical Sector
VAT exemption to 93 items of life saving drugs
Duty exemption facility to various raw materials used in this industry
Medicine used for treating cancer is included in the reduced rate of duty list.
5% CD on Oil-cake of coconut or Copra which was 0% earlier.
Impact: Most of the top ranked companies listed in stock market produce lifesaving drug. Exemption of VAT on those items is resulted in
stability of life saving drugs. 95% of raw material use in pharmaceuticals company is imported. Continuation of Duty exemption facility
ensures that the cost of raw material of producing medicine may remain almost at the same as previous year. Besides company producing
cancer medicine may incur less production cost. Currently in Bangladesh, only roughly 5% demand is met through import which is basically
caner and high end product. It is likely that companies producing cancer medicine may increase the rate of product and thus capture the
market share of imported cancer product gradually. Copra is an inseparable part for producing coconut oil and MARICO may be adversely
affected due to CD imposition on Copra.
Related Listed Companies: BEACONPHAR, BXPHARMA, GSK, SQURPHARMA, ACI,ACMELAB, RENATA,ACTIVEFINE, MARICO etc.
Textile
Withholding tax rate on readymade garments export is .70% and corporate tax rate in FY 2016-17 was 20%. Proposed corporate tax rate is
15%.
Readymade Garments factory possess internationally recognized green building certification will get a reduced tax rate of 14%.
Impact: Proposed lower corporate tax rate for RMG along with incentives for internationally recognized green building certification may
encourage export, improve working condition in RMG sector and avail international standard which is a prerequisite for GSP.
Related Listed Companies: DSSL, GENNEXT, PTL, SONARGAON, STYLECRAFT etc.
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IN DUSTRY IMPAC T

Tobacco
Surcharge 2.5% on the income from the business of producing cigarette, bidi, zarda, gul and other tobacco item
25% export duty has been imposed to discourage its production and use
Price of every 10 sticks of low segment local brand cigarette is fixed at 27 taka from 23 taka and supplementary duty has been increased to 52%
from 50%.
Price of every 10 sticks of low segment international brand cigarette is fixed at 35 taka and supplementary duty has been determined at 55%
No increase in price or supplementary duly on medium and high segment cigarette brand. Currently the price of this segment is 45 taka and
price fixation depends on the discretion of the manufacturer.
Existing tariff value on bidi has been abolished. Supplementary duty on non-filter bidi is 30% and filter bidi is 35%. Tax inclusive price of 25 sticks
of non-filter bidi is 15 taka and 20 sticks of filter bidi is 15 taka has been fixed.
Current duty on e-cigarettes and its refill pack is only 10% in FY 2016-17. Budget of FY 2017-18 propose a customs duty of 25% on both those
items. Supplementary duty of 100% has been proposed on those items.
Impact: Low segment tobacco products are more hazardous to health than medium and high segment brands. Current budget discourage the
consumption of low segment cigarette brand and increased CD on e-cigarettes and its refill as well as 100% SD may benefit high segment
cigarette brands.
Related Listed Companies: BATBC
Tannery
Reduced rate of duty is applicable on the capital machineries on busbar trunking system and electrical panel imported by the industries.
Impact: Reduced duty while installing latest technology and machineries may inspire tannery business to avail standard working condition and
may make their operation more profitable as well.
Related Listed Companies: BATASHOE, FORTUNE,APEXFOOT, LEGACYFOOT etc.
Multinational Companies
Allowing a branch office, liaison office or a subsidiary office (including a subsidiary thereof) of a foreign parent company to maintain an
income year uniform to its parent company.
Related Listed Companies: BATASHOE, BATBC, MARICO, LINDEBD, BERGERPBL, GP, SINGERBD, LAFSURCEML etc. 30
IN DUSTRY IMPAC T

Cement and Real Estate Sector


Proposed supplementary duty on lime stone is fixed at 25.0% which was previously at 0.0%.
Impact: This may increase the cost of raw materials for cement producers. Among the listed companies LAFSURMA imports lime stone thus
increased SD may affect them more than other clinker importing cement companies.
Related Listed Companies: LAFSURMA, HEIDELBCEM, CONFIDCEM, MICEMENT, EHL etc.
Food and Allied
Supplementary duty of 10% on local supply stage of fast food has been imposed in addition to applicable 15% VAT
Increased CD on Cocoa powder and Dry mixed ingredients of food preparations from 15% to 25%.
Increased SD on Powdered milk, Butter and other dairy oils, spreads and products from 20% to 25%.
Extended VAT exemption on Palm Oil and Soya Bean Oil up to June 30, 2019.
Impact: Newly imposed SD on local supply stage will make fast food costly thus frozen food consumption will increase. Besides increased CD
on Cocoa powder and Powdered Milk will increase the cost of biscuits, loaves and cakes. Extended VAT exemption will on Palm Oil and Soya
bean Oil will offset some cost hike due to increased CD.
Related Listed Companies: OLYMPIC, BANGAS, GHAIL, OLYMPIC, RDFOOD, PRAN(AMC), FUWANGFOOD, MEGCONMILK etc.
Ceramics
CD is reduced by 5% from their current level for Talc, Alumina liner and Crude mica
Proposed CD is 5% from existing 10% for Finished Ceramic Products.
Impact: Local ceramic producers may get benefitted from lower cost of goods sold along with protection from import barriers.
Related Listed Companies: RAKCERAMIC, FUWANGCER, MONNOCERA, SPCERAMICS etc.

Others:
CD on poultry finished feed has been increased to 10% from existing 5% which may affect listed poultry feed providers like AMANFEED, NFML.
Investment friendly S.R.O for the expansion of locally manufactured motorcycles. Re-fixed duty rates on hybrid vehicles.
200% SD from existing 350% for Motor car or other motor vehicle exceeding 2750cc but not exceeding 3000cc .
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DISCLAIMER
This document has been prepared by the Research Team of EBL Securities Limited (EBLSL) for information only of its clients residing both in Bangladesh and
abroad, on the basis of the publicly available information in the market and own research. This document has been prepared for information purpose only and
does not solicit any action based on the material contained herein and should not be taken as an offer or solicitation to buy or sell or subscribe to any security.
Neither EBLSL nor any of its directors, shareholders, member of the management or employee represents or warrants expressly or impliedly that the
information or data of the sources used in the documents are genuine, accurate, complete, authentic and correct. However all reasonable care has been
taken to ensure the accuracy of the contents of this document. EBLSL will not take any responsibility for any decisions made by investors based on the
information herein.

ANALYST DISCLAIMER
The person or persons named as the author(s) of this report hereby certify that the views expressed in the research report accurately reflect their personal
views about the subject matters discussed. No part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendations
or views expressed in the research report. The views of the author(s) do not necessarily reflect the views of the EBL Securities Limited (EBLSL) and are subject to
change without any notice. All reasonable care has been taken to ensure the accuracy of the contents of this document and the author(s) will not take any
responsibility for any decisions made by investors based on the information herein.

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ABOUT EBL SECURITIES LTD.
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