Bangladesh Budget Review FY23

Focus on revenue generation while supporting local businesses

10 June 2022

Key Highlights
Macro Features
• 51st national budget sized BDT 6.8tn — 15.2% of GDP.
• 7.25% GDP growth estimation for FY22; 7.5% GDP growth target and 5.6% inflation target for FY23.
• Budget deficit estimated at 5.5% of GDP in FY23 from 5.1% in FY22 revised budget.
• Subsidy expenditure on fuel, electricity, gas, and fertilizer estimated to increase 23.8% reaching
1.9% of GDP. Govt. recognizes that subsidy spending may be ~20% higher than estimate, posing a
challenge in budget management.
Corporate Tax Cut
• 250bps corporate tax cut for listed companies with more than 10.0% free-float, non listed companies
and one person companies on the condition that all receipts and income must be transacted through
bank transfer and all expense and investment over BDT 1.2mn must be made through bank transfer.
However, listed companies that have 10.0% or less free-float will be subject to same tax rate as be-
fore or 250bps higher tax rate if condition of bank transfer is not met. (please see page 2 for details).
‘Made in Bangladesh and Export Diversification’ Encouraged
• Introducing 12% tax rate for all other general industries exporting goods and services and 10% for
all other green industries exporting goods and services, in addition to RMG.
• 20 year tax exemption proposed on local production of three wheelers and four wheelers with an in-
vestment of at least BDT 1bn.
• Import tariff cut on raw materials and VAT exemption/reduction proposed on local production for in-
dustries including Steel, Automobile and Consumer Electronics etc. (please see page 3 and onwards
for details).
Remittance Incentive
• 2.5% cash incentive for remitters proposed to continue.

Overall, this budget can be deemed as a measured act to ensure greater revenue scope and support local busi-
nesses with added focus on export diversification.

Budget in Brief BDT Bn Sector-wise Budget Allocation

Particulars FY22* FY23 YoY Gr %**
Revenue 3,890 4,330 11.3% 63.9%
Tax revenue 3,460 3,880 12.1% 57.2%
Physical Infrastructure
NBR Tax 3,300 3,700 12.1% 54.6% 7.8%
Non-NBR Tax 160 180 12.5% 2.7% Social Infrastructure
Non Tax Revenue 430 450 4.7% 6.6% 11.9% 29.6%
Expenditure 5,935 6,781 14.2% 100.0% General Services
Non Dev. Expenditure 3,716 4,184 12.6% 61.7%
Dev. Expenditure 2,219 2,596 17.0% 38.3% Interest Payments
Overall Deficit 2,045 2,451 19.8% 36.1% 22.6%
Net Foreign Borrowing and PPP Subsidy
802 987 23.1% 14.6%
Grants
Other 27.1%
Domestic Borrowing 1,243 1,463 17.7% 21.6%
From Banks 873 1,063 21.8% 15.7%
From NSD and Others 370 400 8.1% 5.9%
*revised budget; **as % of total expenditure FY23
Source: Budget 2022-23

Budget Deficit Source of Finance

5.5%
3,000 of GDP
5.1%
of GDP 2,451
2,500
5.5% FY23 43.4% 16.3% 40.3%
of GDP 2,045
2,000 4.1%
of GDP
1,543
BDT bn

1,500 1,315

1,000 FY22 Revised 42.7% 18.1% 39.2%

500

0 0.0% 20.0% 40.0% 60.0% 80.0% 100.0%

FY20 Actual FY21 Actual FY 22 FY23 Bank NSD and Others Foreign Borrowing and Grants
Revised
Source: Budget 2022-23

Please see penultimate page for additional important disclosures. UCB Stock Brokerage Ltd. (“UCB”) is a foreign broker-dealer unregistered in the USA. UCB research is
prepared by research analysts who are not registered in the USA. UCB research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934
solely by Rosenblatt Securities Inc., an SEC registered and FINRA-member broker-dealer.
Rate of Tax on Corporate, Individual and Others

Corporate Tax
Company Type Existing Rates Proposed Rates *Rates if the
condition is not

Publicly Traded Company with more than 10% free-float 22.5% 20.0% 22.5%

Publicly Traded Company with 10% or less free-float 22.5% 22.5% 25.0%
Non-Publicly Traded Company 30.0% 27.5% 30.0%
One Person Company 25.0% 22.5% 25.0%
Publicly Traded Banks, NBFIs and MFS 37.5%
Non-Publicly Traded Banks, NBFIs and MFS 40.0%
Non-Publicly Traded Mobile Operator Company 45.0% Condition Not
No Change
Publicly Traded Mobile Operator Company 40.0% Applicable
Cigarette & Tobacco Company (both publicly and non-publicly traded) 45.0%
Dividend Tax for Corporates 20.0%

*Condition: All receipts and income must be transacted through bank transfer and all expense and investment over BDT 1.2mn
must be made through bank transfer (including MFS).

Changes in Rules Related to Income Tax Rebate on Investment for Individuals

• 20% instead of 25% of the total taxable income will be considered as eligible investment amount.

• Investment tax rebate will be 15% of eligible investment amount, irrespective of the individual’s income level. Previously,
investment tax rebate rate on eligible investment amount was 15% for individuals not having more than BDT 1.5mn annu-
al taxable income and 10% for individuals with more than BDT 1.5mn annual taxable income.

• Tax rebate will increase for those investors who have more than BDT 1.5mn annual taxable income.

• Individuals with more than BDT 1.5mn annual taxable income might be more interested to invest.

Tax Exemption Threshold and Tax Rates for Individuals Remain Unchanged

Individual Tax Exemption threshold (BDT Thousand) General Tax Rate on Total Income
General taxpayers 300 Threshold Tax Rate
Women, third gender, and citizen aged 65 and above 350 0 to 300k 0%
Next 100k 5%
Person with disability 450
Next 300k 10%
Gazetted war-wounded freedom fighters 475
Next 400k 15%
Next 500k 20%
On the balance of total income 25%
Special Tax Rates Also Remain Unchanged
Particulars Tax Rate

Income from cigarette bidi, zarda, chewing tobacco, gul or any other tobacco product manufacturing 45%

Income of Non-Residents (not company) 30%

Income of Co-operative Society 15%

Special Tax Treatment in Respect of Undisclosed Offshore Assets

No question about the source of any undisclosed asset located outside of Bangladesh shall be raised by any authority if tax is
paid as per following rates in FY23.

Particulars Tax Rate

Any immovable asset located outside Bangladesh without repatriation to Bangladesh 15% of fair value
Cash or cash equivalents, bank accounts and financial instruments without repatriation to Bangladesh 10%
Cash or cash equivalents, bank deposits and financial instruments repatriated to Bangladesh 7%

10 June 2022 2
Key Budget Proposals with Impact on All Sectors

• Continuity of 2.5% cash incentive on remittance inflow.

• Introducing 12% tax rate for all other general industries exporting goods and services and 10% for all other
green industries exporting goods and services, in addition to RMG.

• Reducing tax at source on supply of raw materials to manufacturers from 7% to 4% and on supply of trading
goods from 7% to 5%.

• Increasing source tax on exports to 1% from 0.5%.

• Increasing source tax on interest income to 20% from 10% for corporates.

• Contribution made to Workers’ Profit Participation Fund (WPPF) will not be considered as an expense to de-
termine income of a company. WPPF is payable from the after tax-profit of a company.

• The government has decided to introduce Universal Pension Scheme from FY23 and will introduce the
‘Universal Pension Management Act, 2022’ by this year.

• At present bad debt that is written off by a bank or financial institution is tax exempt for all taxpayers. From
now on, bad debt that is written off for all types of taxpayers, except for individuals, will be considered taxa-
ble income for the concerned loan defaulter.

Policy Measures Detail Impact Comment

Tobacco
Hike in cigarette prices (for every 10 sticks)
No change in supplementary duty
Low segment: BDT 40 from Positive
existing BDT 39
Medium segment: BDT 65 from
existing BDT 63
High segment: BDT 111 from
existing BDT 102
Premium segment: BDT 142
from existing BDT 135
Low segment: Unchanged from
existing 57%
Hike in the price of cigarette in the
low, high and premium segment may
result in maximum BDT 1.0 per stick
change in retail price, which we be-
lieve will not affect the current con-
sumption significantly.
Since Government is hiking price of
cigarette in all segments without
change in duty structure, it would
increase BATBC’s revenue per stick
with considerable improvement in
gross margin.
Positive

Medium, high and premium

segment: Unchanged from ex-
isting 65%

No change in bidi prices Handmade non-filter: Un- Neutral

changed at the existing BDT 18
for every 25 sticks, BDT 9 for
every 12 sticks and BDT 6 for
every 8 sticks

Filter: Unchanged at the exist-

ing BDT 19 for every 20 sticks
and BDT 10 for every 10 sticks.

10 June 2022 3
Key Budget Proposal by Sector

Policy Measures Detail Impact Comment

Consumer Electronics
Extension of VAT exemption facilities on raw Proposed extension of existing Positive SINGERBD and WALTONHIL will
materials for refrigerator and freezer exemption facilities on import- benefit.
ed and local purchase of raw
material and equipment till
June 30, 2023

Extension of VAT exemption facilities for pro- Proposed extension of existing Positive WALTONHIL will benefit as a manu-
duction of compressors of refrigerators and exemption facilities till June 30, facturer of compressor. SINGERBD
freezers 2025 may benefit if they start producing.
Withdrawing full exemption and imposition of Proposed to impose 5.0% VAT Negative SINGERBD and WALTONHIL will be
VAT at the local manufacturing stage on re- instead of full exemption adversely affected as local manufac-
frigerators and freezers turers of refrigerators and freezers.
Reduction in customs duty for compressor Proposed to reduce CD on Positive WALTONHIL will benefit.
manufacturers winding wire of copper import-
ed for compressor manufactur-
ing to 10% from existing 25%
Increase in import duty on the import of com- Proposed to withdraw lift and Positive As a local manufacturer of lifts,
plete lift and skip hoists skip hoists from capital machin- WALTONHIL will benefit.
ery SRO and impose 5% import
duty at the import stage
VAT exemption for mobile phone batteries, Proposed to exempt VAT at Positive Local manufacturers will benefit.
chargers and interactive displays manufacturing stage
Increase in import duty on cellular phone Proposed to increase import Positive Local manufacturers will benefit.
battery charger duty to 25% from existing 15%
Expansion of concession facility for computer Proposed to expand the con- Positive Local manufacturers will benefit.
accessories and ICT industry cession facility for import of
raw materials
Withdrawal of concessionary facility Proposed to withdraw the con- Positive Local manufacturers will benefit.
cessions on import of printers
and toner cartridges and im-
pose 15% VAT

Imposition of VAT on laptop imports Proposed to impose 15% VAT Positive Local manufacturers will benefit.
on laptop computer imports
from existing 0%

Automobile
Tax holiday for automobile manufacturers Proposed 20-year tax holiday Positive Local manufacturers including IFA-
making three and four-wheelers with an investment of at least DAUTOS, ACI, and RUNERAUTO will
BDT 1bn benefit.

Increased import duty for electric motors up Proposed to increase import Positive Local manufacturers of electric mo-
to 750 Watts (Used for electric two wheelers) duty to 15% from existing 10% tors will benefit.

Extension of VAT (excluding Advance Tax) Applicable for maintenance free Positive Local manufacturers including IFA-
and SD exemption on import of raw materials and sealed maintenance free DAUTOS, ACI, and RUNERAUTO may
and parts for three years batteries, and idling stop/start benefit.
technology

Increased supplementary duty
Applicable for the following: Positive
• Four stroke engine with
251cc to above 800cc ca-
pacity: 100% from existing
0%
• Two stroke engine with
251cc to above 800cc ca-
pacity: 250% from existing
0%
It’s an indication that cc limit on mo-
torcycle engines may be increased.
Local motorcycle manufacturers
(such as RUNNERAUTO and ACI)
may benefit as they might be able to
market higher cc motorcycles in
Bangladesh.

10 June 2022 4
Key Budget Proposal by Sector

Policy Measures Detail Impact Comment

Automobile
Increased supplementary duty at import Applicable for the following Positive Local manufacturers of motor vehi-
stage motor vehicles and other motor cles will benefit.
vehicles, including station wag-
ons:
• 2001-3000cc: 350% from
existing 200%
• 3001-4000cc: 500% from
existing 350%

Applicable for CKD motor vehi-

cles, station wagons including
jeeps:
• 2001-3000cc: 150% from
existing 100%
• 3001-4000cc: 350% from
existing 300%
• Above 4000cc: 500% from
existing 350%

Applicable for complete hybrid

motor vehicles and other motor
vehicles:
• 2001-2500cc: 60% from
existing 45%
• 2501-3000cc: 100% from
existing 60%
• 3001-4000cc: 150% from
existing 100%
• Above 4000cc: 350% from
existing 300%
• 2001cc or above for micro-
bus: 60% from existing
45%

Mobile Financial Services (MFS)

Proposed to keep service charge of MFS out MFS operators are charged tax Positive
of tax deduction at source at source for service charge on
cash out and send money. This
proposal is intended to keep
such service charge out of tax
deduction at source.
This will positively impact MFS oper-
ators namely bKash (subsidiary of
BRACBANK), Upay (subsidiary of
UCB) and Rocket (DUTCHBANGL).
These companies can either bring
down their service charges to boost
transaction volume or can increase
their margin.

Telecommunication and IT
VAT exemption on revenue sharing to BTRC Positive Mobile operators currently shares
against 4G mobile services provided by mo- 5.5% of their revenue with the gov-
bile operators ernment. VAT exemption on revenue
sharing will increase their earnings.
Hence GP and ROBI will be benefit-
ted.

VAT exemption on revenue sharing to BTRC Positive POWERGRID, the only listed NTTN
against NTTN service license holder, will be benefited from
this.

Withdrawal of the existing 5% VAT exemp- Negative Mobile phone might get costlier for
tion at trading stage of mobile phone sets consumers.

10 June 2022 5
Key Budget Proposal by Sector

Policy Measures Detail Impact Comment

Telecommunication and IT
VAT exemption for mobile phone batteries, Proposed to exempt VAT at Positive Locally produced mobile phones may
chargers and interactive displays manufacturing stage become cheaper, which will increase
smartphone penetration.

SD on the import of optical fiber cable 10% proposed vs. existing 0% Neutral Local producers of optical fiber will
be benefitted.

Consumer Goods
VAT exemption at the trading stage for sugar Positive Biscuit manufacturer like OLYMPIC,
and puffed rice F U WA N GFO OD , BD THAIF OOD ,
BANGAS will benefit.
Supplementary duty on cheese at the import 20% proposed vs. existing 0% Negative Cost of Biscuit manufacturer like
stage OLYMPIC, FUWANGFOOD, BDTHAI-
FOOD, BANGAS will increase.

Reduction of duty on raw cashew nuts CD: 1% proposed vs. existing Positive Biscuit manufacturer like OLYMPIC,
25% in shell F U WA N GFO OD , BD THAIF OOD ,
5% proposed vs. existing 25% BANGAS will benefit.
shelled

VAT: 0% proposed vs. existing

15%

Healthcare

• VAT exemption on Active Pharmaceuti- Positive Local API producers like ACTIVE-
cals Ingredients (API) at local manufac- FINE will be benefitted. Pharmaceu-
turing stage. tical companies i.e. SQURPHARMA,
BXPHARMA, ACMELAB, ACI which
produce API for in house consump-
• VAT (including Advance Tax) and Supple-
tion will also get benefitted.
mentary Duty exemption on import and
local purchase of raw materials of API.

Tax holiday has been extended to the imports Positive Listed medical kit producers like
of required raw materials used for the pro- JMISMDL, JHRML, LIBRAINFU will be
duction of medical kits. benefitted.

Withdrawal of VAT exemption at manufactur- Negative Among the listed companies,

ing and trading stage of COVID-19 Test Kit, BEXIMCO produces PPE and protec-
PPE, Protective Garments, Plastic Face tive garments.
Shields, Medical Protective Gear, Protective
Spectacles, and Goggles for medical use and
mask.
Withdrawal of existing concessional facility at Neutral Local producer of masks and hand
import stage of masks and hand sanitizers, sanitizers like JMISMDL, JHRML,
raw materials required for the production of RECKITTBEN, ACI will be benefitted.
masks and PPE, raw materials required for However, local PPE producers
the preparation of RT-PCR kits for detection which are dependent on imported
of coronavirus raw martials will see their cost rise.

10 June 2022 6
Key Budget Proposal by Sector

Policy Measures Detail Impact Comment

RMG & Textile

Continuation of 1.0% Export Incentive in Government started providing Positive This would help RMG factories to
FY23 1.0% cash incentive to the increase their profitability.
textiles and RMG industry in
FY20

The government now decides

to continue this incentive in
FY23
The prevailing 15% income tax rate for the This preferential tax regime for Positive This would help textile companies to
textile sector will continue until June 30, textile companies was sup- maintain profitability.
2025. posed to end on June 30, 2022
VAT exemption on supply of goods under sub Positive This would help RMG manufacturers
-contract between the RMG manufacturing to reduce cost.
units when both are enjoying bonded facility.

Financial Institutions (Bank, NBFI, Insurance)

Imposition of tax on capital gain from gov- As per existing provision, the Negative This will negatively impact the Finan-
ernment securities capital gain earned from gov- cial Institutions who usually make
ernment securities is kept out investment in government securities
of the purview of taxation. In and is likely to generate capital gain
this budget, capital gain on on government securities in the fu-
government securities is pro- ture.
posed to be taxed.

Bangladesh Bank will conduct a feasibility Through Central Bank Digital Positive
study on the possibility of introducing Central Currency Bangladesh Bank
Bank Digital Currency intends to facilitate currency in
virtual transactions and to en-
courage startups and e-
commerce businesses.
This will bring positive impact in digi-
tal transaction which should bring
more core efficiency for Financial
Institutions.

Possibility of establishing digital banks To strengthen financial inclu- Positive This will further enhance the move
sion government will examine towards digital financial system.
the possibility of establishing
digital banks.

10 June 2022 7
Key Budget Proposal by Sector
Policy Measures
Construction
Increased VAT at manufacturing stage of Proposed to increase VAT by Negative Steel manufacturers using mild steel
different mild steel (MS) products BDT 200 per ton
Reduction in VAT at trading stage for MS
products
Reduction in import duty on hot-rolled stain-
less steel sheets
Reduction in import duty on HR coil, zinc,
and raw materials used for GI sheets and
steel production
Exemption of Advance Tax
Withdrawal of existing VAT exemption
Increase in import duties on wires, rods,
tubes and pipes
Reduction in import duty for bars and rods of
alloy steel used as raw material for elec-
trodes manufacturers
Ceramics
Reduction of CD for China clay imported by
industrial IRC holder VAT compliant tiles &
Sanitary products manufacturing industry
Reduction of CD for ball clay imported by 5% proposed vs. existing 15%
industrial IRC holder VAT compliant tiles &
Sanitary products manufacturing industry
10 June 2022
Detail Impact Comment
(such as BSRMLTD, BSRMSTEEL,
GPHISPAT) might see contraction in
profit.
Proposed to fix VAT at BDT 200 Positive Steel manufacturers using mild steel
per ton from existing BDT 500 (such as BSRMLTD, BSRMSTEEL,
per ton GPHISPAT) will benefit.
Proposed to reduce import Positive Steel product manufactures will ben-
duty to 5% from existing 10% efit.
Proposed to reduce import Positive ANWARGALV, BSRMLTD, BSRM-
duty to 3% from existing 5% STEEL, SSSTEEL may benefit.
Proposed to exempt advance Positive Cement producers (such as LHBL,
tax on imported raw materials CONFIDCEM, HEIDELBCEM) will ben-
of polypropylene staple fiber efit.
Proposed to Withdraw existing Negative Cement producers (such as LHBL,
VAT exemption at production CONFIDCEM, HEIDELBCEM) may be
stage of concrete ready mix affected adversely.
• Wires: 10% from existing Positive Local manufacturers (such as AZ-
5% IZPIPES) will benefit.
• Pipes: fix at 25% from
existing 15-25%
• Rods, tubes, plates, elec-
trodes: 15% from existing
10%
• Screws, nuts and bolts: fix
at 20%
Proposed to reduce import Positive LINDEBD and BDWELDING may ben-
duty on M.S. bars and rods efit.
imported by electrode manu-
facturers to 5% from existing
10%
5% proposed vs. existing 15% Positive Ceramic manufacturers (such as
RAKCERAMIC, FUWNGCER) will ben-
efit.
Positive Ceramic manufacturers (such as
RAKCERAMIC, FUWANGCER) will
benefit.
8
Key Budget Proposal by Sector

Policy Measures Detail Impact Comment

Miscellaneous

Exemption of tax on the income earned in Positive This might be beneficial for Bangla-
foreign exchange by ocean going vessels desh Shipping Corporation (BSC)
carrying Bangladeshi flags until 2030 if the and also the shipping business unit
income is brought through banking channel of MJL Bangladesh Limited (MJL).

Reducing the existing VAT rate on manufac- 5% proposed vs. existing 15% Positive
turing hand towels/paper towels/clinical bed
sheets

Imposing SD on Paper Cup, Plate, Bowl 20% proposed Negative

VAT exemption at trading stage to those ani- Positive Raw material cost of feed industry
mal feeds which are already enjoying exemp- will be reduced. AMANFEED, INDEX-
tion at import and manufacturing stage AGRO, NFML will be benefitted.

VAT exemption on manufacturing and trading

for poultry, dairy and fish feed products

Reducing import duty on ‘wheat gluten’ used

in food preparation of domestic poultry in-
dustry to 15% from 25%.

Reducing import duty on ‘sugarcane molas-

ses’ from 15% to 10%
Withdrawing SD on all types of polythene 0% proposed vs existing 5% Positive
bags, plastic bags and wrapping materials
made of polyethylene

10 June 2022 9
Disclaimer
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EQUITY RECOMMENDATION STRUCTURE (ABSOLUTE RATINGS)

We calculate our target price by weighting DCF, DDM, SOTP, asset-based and other relative valuation methods, and applying
appropriate premiums/ discounts and/or other relevant adjustments.

Recommendation Type Holding period (if not otherwise mentioned) Absolute Return Potential

Buy 12 Months More than +15%

Neutral/ Hold 12 Months Between +15 % and -5 %
Underweight 12 Months Less than -5 %

ANALYST CERTIFICATION
Respective analyst(s) identified in this report certifies, with respect to the companies or securities that the individual an an-
lyses, that (1) the views expressed in this report reflect his or her personal views about all of the subject companies and securi-
ties and (2) no part of his or her compensation was, is or will be directly or indirectly dependent on the specific recommenda-
tions or views expressed in this report. The research analyst(s) named on this report are not registered / qualified as research
analysts with FINRA.

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