HIGHLIGHTS OF 2010-2011 BUDGET PROPOSALS

A LBSL Research Publication BANGLADESH

www.lbsbd.com June 24, 2010
Md. Ashaduzaman Riadh
Email: ashaduzaman@lbsbd.com
008801730310031
Md. Nazmul Islam
Email: mnazmul@lbsbd.com
008801730310049

I. Budget highlights:

Brief Summary of Budget FY 2010-11 FY2009-10

 The National Parliament has proposed the
Tk in Tk in
budget for the fiscal year 2010-2011 on 11th of
Billion Billion
June, 2010 with the broad objectives of
Development 396.9 296.2
alleviating poverty, maintaining the
Expenditure (ADP)
macroeconomic stability and propelling the
Non-Development 924.7 808.9
Expenditure (Non ADP)
growth.
Total Expenditure 1321.7 1105.1
Tax Revenue 760.4 639.6
Non Tax Revenue 168.1 155.3  To fulfill the broad objectives the govt. will
Total Revenue 928.5 794.9 face huge challenges like crippled situation in
Bank Borrowing 156 86 the Power sector, plummeting investments,
Non-Bank Borrowing 80 86.6 nearly double digit inflation, struggle of
Domestic Borrowing 236 172.6 garment sector for maintaining the competitive
Foreign Borrowing 108.3 99.7 edge and the decline of manpower export etc.
Foreign Grants 48.1 37.4
Total Aid Requirement 156 137
 With a size of BDT 1.32 Trillion, largest in its
history, the budget has gross revenue target of
 In this budget the Gross Domestic Product
(GDP) is projected to grow at 6.7% and the BDT 928 Billion. This year the budget
Inflation in this fiscal is expected to ease at deficiency has been projected BDT 393
around 6.5 %. Billion.

 Unlike other sectors, agriculture maintained its

expected growth. In the proposed budget of
2010-11, It has been allocated 208 billion, which
is 26.5% higher than budget FY 2009-10. The
allocation is 6.48% of the total ADP, which is
34% higher than that of FY 2009-2010. But Firm
subsidy has been reduced by 20%.
 Main emphasize has been given on the Energy
and Power sector which 60 percent higher
than pervious year. Because it is considered
that the up-gradation of this sector is the
precondition of the over all development of
the economy.

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 HIGHLIGHTS OF 2010-2011 BUDGET PROPOSALS

II. Revenue Estimate:

 From the summary table it is evident that, the

Total Revenue Composition :Budget Proposals: government has elevated its revenue generation target to
928 Billion (2010-2011) BDT 928 billion, a rise from BDT 794 billion of the
FY09 revised budget. It has been increased by 17%
Non Tax Tax Revenue from the previous financial year.
Revenue, (NON-
12.70% NBR), 2.60%

 The revenue-GDP ratio is 11.9 pc. Value Added Tax

Domestic (VAT) income in FY10 budget is expected to grow by
Financing,
17.90% 18.86 pc from the FY09 revised budget, with another
Tax Revenue 26.84 pc rise expected in income tax, 4.36 percent
(NBR),
54.90%
growth in import duty collection and 22.71 percent
Foreign
Loan,8.20% increase in supplementary tax collection.
Foreign
Grants,
3.60%  The Total Tax revenue will rise by 18.75% percent to
Tk.760 billion, which is Tk. 640 billion in the revised
budget of the current fiscal year.

 To alleviate the mismatch in income and expenditure, a

large deficit of BDT 393 billion is expected which is 5
Total Tax Revenue (NBR & NON NBR) 760 Billion
pc of the GDP. To fill it Govt. will borrow BDT 156
(2010-11)
Taxes on
billion from the banking system, which is an 81 percent
Land jump from the FY09 revised bank borrowing.
narcotics Vehicle Revenue
and liquir 1.14% 0.72%
duty 0.09%
 But In addition to the high bank borrowing plan the
Other Taxes
government has planned to reduce non-bank borrowing
Stamp Duty.
and Duties 2.58%
to BDT 80 billion for FY10. From the table, it is clear
0.61%
Taxes on
that Foreign Grants 48.1 billion and Foreign Borrowing
Income and 108.3 billion are other two components to meet up the
Profit deficiency of Budget.
Supplement 27.62%
ary Duty
 From the summary table we find that, the government
16.92%
expects to receive 15.2 pc more aid in FY10-11, which is
Excise Duty projected at 156 Billion.
0.36% Value
Added Tax
Import Duty
35.63%
14.31%

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 HIGHLIGHTS OF 2010-2011 BUDGET PROPOSALS

III. Expenditure Estimate

Expenditure Composition Budget Proposals:  In the budget of FY 2010-11, the total

2010-2011 (TK1321.70 Billion) Use of expenditure has been estimated at Tk. 1321.70
Resources billion. This is 16.9 percent of GDP and 19.6
Miscellaneous Recreation, Cult
Public Order &
Security, 5.2%
percent higher than the revised allocation for FY
Expenditure, 3.9
%
Industial &
Economic
ure & Religious
Affairs , 1.2%
2009- 10. Different allocation has been made to
Housing, 1%
Services, 0.9% different sectors.
Education &
Information Social Security
Technology &
Welfare, 7.30%
 Of them, Public Administration has got the
13.90%
Interest, 11.10%
Public
Administration,
highest preference 14.2%. Besides these
Transport & 14.2% Education & Information Technology also got
Communication,
6.70% Defence, 6.90%
13.90% & the next preference is Agriculture
Local Govt& 8.6%.
Rural Agriculture, 8.6
Development, 8. %
20%
 Total development expenditure of this budget
Energy & Health, 6.20%
Power, 4.6% FY 2010-2011 is Tk. 396 billion. It has been
increased by 34 percent from the revised budget
2009-10.

Development Budget :2010-2011 (Tk 396.94  In the coming year, allocation for Development
Billion) Details of Development Expenditure Expenditure has been categorized into different
base. Percentage of ADP allocation to different
Social
sectors is provided on descending order: Local
Others5.2%
Security& Public Government and Rural Development, Energy &
welfare5.3% Administrati Power, Transport & Communication, Education
Energy & on7.80%
Power15.3
& Information Technology, Agriculture, Health,
% Public administration, Social Security and welfare
Health 8.7%
and others.
Agriculture,
Transport & 8.90%
Com14.20%
Education
&
Local Govt Information
& Rural Technology,
Developme 12.80%
nt 21.80%

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 HIGHLIGHTS OF 2010-2011 BUDGET PROPOSALS

Non Development Budget: 2010-2011(Tk 924.76 Billion)

 In the coming year FY 2010-2011,
Details of Non Development Expenditure allocation for Non-Development
budget stands at Tk. 924 billion. The
Industrial & non-development and ADP
economic expenditure have increased by 14.32
Services Housing Miscellaneous
Local Govt & 0.04%
1% expenditure, Recreation
percent over the revised budget
Rural
Development,
5.8% culture & allocations for FY 2009-10.
religious Affairs
1.9%
1%

Subsidies  Besides these Public Administration has

Agriculture 8.3%
4.3% got 13.7%; while, Education&
Interest
15.9% Information technology 13.4%, Interest
Health
5% 15.9%, Subsidies 8.3%, Social Security
Education & & welfare 7.7%, Agriculture 4.3% etc
Social Security Information
& welfare Technology, are mentionable sectors where the
7.7%% 13.4% allocation got the most priority.
Transport &
Communication
3% Defence
8%

Public Public Order &

Administration Security
13.7% 6%
Pension
4%

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 HIGHLIGHTS OF 2010-2011 BUDGET PROPOSALS

IV. Implications of Budget proposals on Listed entities

Power and Energy

It has been given priority among all the sectors in this budget. The budget 2010-11 unveils the five year
roadmap plan for the major development of this sector. It has got total 99 projects under the ADP
allocation. The plan proposes to add 837 km of power grid lines, 17 sub-stations and more than 15000
km of distribution lines over the three years. Out of these, construction of 820 MW peaking plants,
developing power system, construction of liquid fuel system are some of the new projects approved
under the ADP for FY 2010-11. The budget has provided tax incentives for energy saving light, safety or
relief valve for LPG, submerge wielding flux etc. Finally it can be said that all the plans are very ambitious
and will create a positive impact in power sector.

Real Estate

The government has proposed to increase taxes in real-estate sector. In the budget for 2010-11, the tax
rate proposed is BDT 2000 per square meter for posh areas (both in Dhaka and Chittagong) and BDT 800
for other areas from existing BDT 250 per square meter taxes. The increase in taxes may sluggish the
demand in this sector.

Ceramic Sectors
Increase of supplementary duty on ceramics, stones, tiles and mosaic, bath tub, basin will benefit local
industries.

Telecommunication

The budget has mentioned nothing on the reduction of SIM taxes. The budget has however proposed to
decrease the imports duty on module to 5 per cent from 12 per cent.

Textile
Reduction of import duty on textile machineries, Priory in the case of distribution of electricity, 20%
supplementary duty will boost this sector.

Banks and NBFIs

Corporate tax rate for Banks and Non-bank Financial Institutions remains constant of this year which is
42.5%. There is no change regarding tax and VAT system in this sector. But the government has imposed
10% of Capital Gain Tax on institution for trading of shares which has an indirect implication of this
sector.

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 HIGHLIGHTS OF 2010-2011 BUDGET PROPOSALS

V. Implication of Proposed budget on the capital market

Proposed budget has not carried much rosy news for capital market. Though finance minister has
promised to maintain steady growth and development of capital market, several propositions in the
current budget may hobble its development.

 The budget for 2010-2011 has proposed to increase the tax on members of share market by
300%, to 0.1 % from the existing 0.025 %. This hike in the tax on brokerage commission will be
borne by investors, leading to an increase in the cost of doing business and direct negative
impact on transactions. It will also affect expansion drive of brokerage houses which is contrary
to capital market development.
 The budget has exempted the individual investors from capital gain taxation but imposed a 10%
tax for the institutions on the capital gains on trading of shares. Institutional investors act as a
stabilizer in the capital market .This taxation will discourage the institutional investors to invest
leading to more volatility in capital market.
 Sponsor directors of the listed companies will be taxed at a rate of 5% on the capital gain
(difference between sale price and face value). Though Sponsor directors comprises small group,
this taxation will hinder the supply of fresh issues which are imperative to mitigate the
whopping demand.
 The proposed budget has mentioned Where a company raises its share capital through book
building or public offering or rights offering or private placement or preferential share of in any
other way at a value in excess of face value, the Securities and Exchange Commission shall
collect premium tax at the rate of 3% on difference between the value sat which the share is
sold its face value from the concerned company at the time determined by the SEC.
This proposed taxation on the premium value of shares also contradicts the income tax rules.
The shares with premium value or without premium value are related with a company's paid-up
capital not related to a company's income or profit. This tax will reduce the amount of raised
capital and divert the entrepreneurs to bank borrowing rather than raising capital from floating
shares.
 New budget has rescinded the black money whitening provision by investing in the capital
market. Withdrawal of this opportunity may reduce the liquidity in the capital market. Budget
has proposed BDT 16 billion Bangladesh Infrastructure Finance Fund (BIFF). Country’s buoyant
capital market could have been wonderful mechanism to raise this fund. As supply constrain
prevails in the market due to adequate issues and Govt. always reiterates their commitment to
make vibrant capital market, this fund would abate the appetite of demand side. Also No
specific guidelines have been provided of offloading the shares of 26 SOEs. But the increase in
real estate tax may divert the fund of retail investors to capital market.

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 LBSL’s Evaluation of Proposed Budget

The proposed Tk.1.32 trillion national budgets for 2011 fiscal year aimed at propelling higher economic
growth is not ambitious in the context of size and development need of Bangladesh. Though the
proposed budget has repeated the most of its previous polices, major challenge lies in revenue
collection and implementation of ADP. The total revenue target, for the coming fiscal year is set at BDT
928.5 billion, which is 17% higher than the revised projection for FY 2009-10. Without ensuring efficient
tax administration free from graft, procrastination, revenue target will not be achieved.

The Annual Development Programme (ADP) is projected to increase by a huge 35 percent from this
fiscal year's revised budget. This positive increase may be overshadowed as Statistics shows that ADP
implementation rate In the fiscal year 2006-07, 2007-08, 2008-09 and 2009-10 (till Jan) was 81%, 82%,
86% and 36% respectively. To achieve projected 6.7% growth, all obstacles like complicated tendering
process, lack of managerial know how, delay in fund release should be removed.

Reining the rising inflation is the big concern for the government. Expansionary fiscal policy and increase
in import price will also add fuel to this inflationary pressure. 156 billion domestic borrowing from
banking system or 81.39% increase from previous year may raise the interest rate leading to crowding
out effect. Persistence rise in inflation disrupts macroeconomic stability and affects the poor people.

Commendable new idea like Private-public partnership proposed in the FY 2009-10 has got details policy
guideline in this year. The allocation BDT 30 billion for PPP and creation of BDT 16 billion Bangladesh
Infrastructure Finance Fund (BIFF) will significantly contribute to achieve the growth target.

The lack of Infrastructure justifies priority allocation for infrastructure developments in the proposed
budget. The decision to spend 61.2 billion in power sector development, 60 percent higher allocation,
will improve the power crisis which is the main barrier to investment and growth. Stimulus package for
industry to withstand the effect of global recession is also a sound step. Country’s capital market can be
utilized in power infrastructure development and PPP.

We hope budgetary proposals will be implemented efficiently to accelerate the growth of physical
capital, human capital and the growth of technology which are main catalysts of sustainable economic
growth.

This document is published by LankaBangla Securities Ltd for the exclusive use of their
clients. All information has been compiled from available documentation and LBSL’s own
research material. Whilst all reasonable care has been taken to ensure the accuracy of the
contents of this document, neither LBSL nor its employees can accept responsibility for any
decisions made by investors based on information herein.