The Proposed National The Proposed National Budget 2011-12Budget 2011-12**

AKHTER M CHAUDHURY FCAAKHTER M CHAUDHURY FCA

Member Council ICABMember Council ICAB

ICAB Auditorium (9th floor)ICAB Auditorium (9th floor)

25 June 201125 June 2011

*(Based on Finance Bill 2011, Budget Speech of the Finance Minister and *(Based on Finance Bill 2011, Budget Speech of the Finance Minister and NBR Website)NBR Website)

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF BANGLADESH

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Budget is a plan for….Budget is a plan for….

Economic DevelopmentEconomic Development Social DevelopmentSocial Development National DevelopmentNational Development GovernanceGovernance HousekeepingHousekeeping

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Budget is a tool to ….Budget is a tool to ….

Advance economic agendaAdvance economic agenda Balanced and sustainable economic Balanced and sustainable economic

growthgrowth Equitable distribution of wealthEquitable distribution of wealth Poverty alleviationPoverty alleviation

Mobilise resources necessary toMobilise resources necessary to Implement development plans Implement development plans Finance Government expenditureFinance Government expenditure

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The 2011-2012 Budget is Highly The 2011-2012 Budget is Highly AmbitiousAmbitious

Largest in the Country’s historyLargest in the Country’s history BDT 1.63 TrillionBDT 1.63 Trillion

High GDP growth targetHigh GDP growth target 7%7%

Significant increase in internal Significant increase in internal resource mobilisationresource mobilisation Dwindling foreign aidDwindling foreign aid

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This Budget …This Budget …

Is more of an economic plan than a fiscal Is more of an economic plan than a fiscal budget (apparently)budget (apparently) Offers continuity and stabilityOffers continuity and stability

Better for tax planningBetter for tax planning Sting in the tail? (The Act, Rules and SROs to come)Sting in the tail? (The Act, Rules and SROs to come) Misses opportunity to redress inequities in the Misses opportunity to redress inequities in the

systemsystem Protects local industryProtects local industry

Is it a good thing in the long run?Is it a good thing in the long run? Widens Social Safety measuresWidens Social Safety measures

Poverty AlleviationPoverty Alleviation Capacity to monitor and implement?Capacity to monitor and implement?

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The Budget prioritises…The Budget prioritises…

EducationEducation highest ADP allocationhighest ADP allocation

Power and EnergyPower and Energy thrust sectorthrust sector

Agriculture and CommunicationsAgriculture and Communications Special attentionSpecial attention

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The budget will be financed by ..The budget will be financed by ..

Tax59%

Foreign Loans & Grants

11%

Domestic Resources

16%

Non Tax14%

Budget DeficitBDT 45,204 Crore5% of GDP(4.4% in 10/11 and 3.7% in 09/10)

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Deficit financing will be detrimentalDeficit financing will be detrimental

Significant government borrowing Significant government borrowing from banking systemfrom banking system Reduced fund availability for private Reduced fund availability for private

sectorsector No quantitative easing policyNo quantitative easing policy

Could crowd out private investmentCould crowd out private investment Retard private sector growthRetard private sector growth

Reduced employment growth, incomes, taxesReduced employment growth, incomes, taxes Vicious cycle Vicious cycle

Higher cost of fundsHigher cost of funds Will fuel inflationWill fuel inflation

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Tax threshold raisedTax threshold raised

For MenFor Men From BDT 165,000 to BDT 180,000From BDT 165,000 to BDT 180,000

For Women and Senior CitizensFor Women and Senior Citizens From BDT 180,000 to BDT 200,000From BDT 180,000 to BDT 200,000

For Physically Handicapped personsFor Physically Handicapped persons From BDT 200,000 to BDT 250,000From BDT 200,000 to BDT 250,000

Some changes in subsequent slabsSome changes in subsequent slabs

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The illusion of increased The illusion of increased Investment AllowanceInvestment Allowance

Investment Allowance increased from Investment Allowance increased from Tk 10 lacs to Tk 1 CroreTk 10 lacs to Tk 1 Crore Restricted to 20% of total income Restricted to 20% of total income

excluding Employer’s contribution to PF excluding Employer’s contribution to PF and any income under Section 82 (C)and any income under Section 82 (C)

Excludes investment in shares of listed Excludes investment in shares of listed companiescompanies

Minimum tax in any case will be Tk 2,000Minimum tax in any case will be Tk 2,000 The increased facility is theoretical and The increased facility is theoretical and

cannot be availed by anyone in realitycannot be availed by anyone in reality

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No change in Corporate Income No change in Corporate Income Tax RatesTax Rates

Highest tax rates in the regionHighest tax rates in the region Stunts corporate growthStunts corporate growth Discourages FDIDiscourages FDI

37.5%35%35%

34%30%30%30%30%

25%25%25%

20%20%

17%0%

BangladeshSri LankaPakistan

IndiaNepal

ThailandMyanmar

PhilipinesChina

MalaysiaVietnam

CanbodiaTurkey

SingaporeMaldives

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Generally acclaimed proposals..Generally acclaimed proposals.. Extension of Tax Holiday up to 2013Extension of Tax Holiday up to 2013

Except Tourism IndustryExcept Tourism Industry Zero duty on import ofZero duty on import of

essential foodsessential foods essential agricultural inputsessential agricultural inputs life saving medicineslife saving medicines

Reduced duty on industrial raw materialsReduced duty on industrial raw materials Tax deduction at source on Sanchaypatras Tax deduction at source on Sanchaypatras

reduced from 10% to 5%reduced from 10% to 5% To encourage savings?To encourage savings?

Tax rebate on CSR costs of up to Tk 8 Crore or Tax rebate on CSR costs of up to Tk 8 Crore or 20% of income (whichever is lower)20% of income (whichever is lower)

Some government employees to pay income taxSome government employees to pay income tax But only on basic salary!!But only on basic salary!!

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Generally acclaimed proposals..Generally acclaimed proposals.. Free of charge TIN registrationFree of charge TIN registration No audit of for tax payers whose income is at No audit of for tax payers whose income is at

least 20% higher than the previous year, also least 20% higher than the previous year, also subject to some other conditionssubject to some other conditions

Turnover Tax reduced from 4% to 3%Turnover Tax reduced from 4% to 3% Turnover ceiling unchanged at BDT 60 lacsTurnover ceiling unchanged at BDT 60 lacs

Investment in DPS of any scheduled bank eligible Investment in DPS of any scheduled bank eligible for Investment Allowancefor Investment Allowance

Generally Pro SMEGenerally Pro SME 45% of manufacturing value addition45% of manufacturing value addition 80% of industrial employment80% of industrial employment 90% of industrial units90% of industrial units

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More taxesMore taxes

Corporate Income Tax for Cigarette Corporate Income Tax for Cigarette manufacturers raised to 42.5%manufacturers raised to 42.5%

Surcharge of 10% on Income Tax payable if Surcharge of 10% on Income Tax payable if Net Wealth exceeds Tk 2 CroreNet Wealth exceeds Tk 2 Crore Unfair to tax honesty, prudence and savingsUnfair to tax honesty, prudence and savings Mixed signals!!Mixed signals!!

Poultry Farms and Fisheries to be taxed at Poultry Farms and Fisheries to be taxed at 5%5% Food price inflationFood price inflation May stunt growth of this prospective employment May stunt growth of this prospective employment

generating sectorgenerating sector Retards empowerment of small investorsRetards empowerment of small investors

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More taxesMore taxes Withdrawal of tax rebate at 10% of tax payable Withdrawal of tax rebate at 10% of tax payable

for those in 25% slab and declaring 10% more for those in 25% slab and declaring 10% more incomeincome

Minimum tax for Companies 0.5% of Gross Minimum tax for Companies 0.5% of Gross Receipts (previously Tk 5,000)Receipts (previously Tk 5,000) Against the basic principles of income tax and natural Against the basic principles of income tax and natural

justicejustice All exemptions on interest earned from savings All exemptions on interest earned from savings

withdrawnwithdrawn 50% of the amount by which the cost of a car or 50% of the amount by which the cost of a car or

jeep bought by a Company exceeds 10% of its jeep bought by a Company exceeds 10% of its paid up capital will be treated as incomepaid up capital will be treated as income High import duties responsible for high vehicle prices!!High import duties responsible for high vehicle prices!!

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Expanded Tax Deduction at SourceExpanded Tax Deduction at Source

Rates mostly unchanged but some Rates mostly unchanged but some definitions extended or modified, e.g.definitions extended or modified, e.g. Reduced for Savings CertificatesReduced for Savings Certificates 5% for income from hall rentals5% for income from hall rentals 10% from income for service provided to foreign 10% from income for service provided to foreign

personspersons TDS up from 0.4% or 0.5% to TDS up from 0.4% or 0.5% to 1.5%1.5% on all export on all export

proceedsproceeds Excessive and likely to make RMG exports unviableExcessive and likely to make RMG exports unviable

0.1% on Brokerage Commission, up from 0.05%0.1% on Brokerage Commission, up from 0.05% 10% on Distributor’s commission, up from 7.5%10% on Distributor’s commission, up from 7.5%

Modalities when discount instead of commission?Modalities when discount instead of commission? More….More….

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Tax net must be widenedTax net must be widened Improvement in Tax GDP Ratio will not be Improvement in Tax GDP Ratio will not be

possible without bring more people into tax net possible without bring more people into tax net Tax GDP Ratio in Bangladesh lowest in the Region

2011/12 – 10.2% (Budget)2011/12 – 10.2% (Budget) 2010/11 – 9.3% (Estimated)2010/11 – 9.3% (Estimated) 2016 – 13% (Target)2016 – 13% (Target)

Gains of individual investors in the Stock Market Gains of individual investors in the Stock Market not to be taxed (except non residents and not to be taxed (except non residents and sponsor shareholders)sponsor shareholders) Investors will not need TINInvestors will not need TIN

Whitening of undisclosed income at a Whitening of undisclosed income at a concessionary rate by investing in Government concessionary rate by investing in Government BondsBonds

NBR now has power to impose TINNBR now has power to impose TIN

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Tax AdministrationTax Administration Retired District Judge eligible to be member Retired District Judge eligible to be member

of Taxes Appellate Tribunalof Taxes Appellate Tribunal Alternative Dispute Resolution (ADR) Alternative Dispute Resolution (ADR)

procedure to be introducedprocedure to be introduced Rules to followRules to follow

10% of disputed tax (previously 5%) to be 10% of disputed tax (previously 5%) to be paid for appealing to Tax Appellate Tribunalpaid for appealing to Tax Appellate Tribunal Yet no provision to curb indiscriminate use of Yet no provision to curb indiscriminate use of

discretionary powers by DCTdiscretionary powers by DCT 25% to 50% of disputed tax (previously 25% to 50% of disputed tax (previously

10%) to be paid for filing reference to High 10%) to be paid for filing reference to High Court Court Impossible to seek justice from the High CourtImpossible to seek justice from the High Court

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Tax Administration – New ReturnsTax Administration – New Returns

Mandatory Income Tax returns for Mandatory Income Tax returns for NGOsNGOs

Mandatory Quarterly Withholding Tax Mandatory Quarterly Withholding Tax ReturnReturn

Annual Information ReturnAnnual Information Return As and when asked by NBRAs and when asked by NBR

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Tax Administration - PenaltiesTax Administration - Penalties

Imprisonment and or fine for refusing Imprisonment and or fine for refusing to give information to Tax Authorities to give information to Tax Authorities or ‘obstructing’ tax authorities in or ‘obstructing’ tax authorities in discharging their dutiesdischarging their duties Excessive powerExcessive power Safeguards against misuse?Safeguards against misuse?

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Some opportunities missed to Some opportunities missed to rationalise……… rationalise………

Tax penalty for foreign travel costs in excess of Tax penalty for foreign travel costs in excess of 1% of turnover1% of turnover Hurts business, particularly exportersHurts business, particularly exporters

TDS on CA firms feesTDS on CA firms fees 10% too high as net profits are low (in addition to VAT)10% too high as net profits are low (in addition to VAT) Hurts much needed growth of the professionHurts much needed growth of the profession

Credit for AIT on imports not given until assessee Credit for AIT on imports not given until assessee can prove tax paid into Treasurycan prove tax paid into Treasury Original Bill of Entry should sufficeOriginal Bill of Entry should suffice

Only publicly traded companies receive a Tax Only publicly traded companies receive a Tax rebate at 10% for paying dividends of 20% or rebate at 10% for paying dividends of 20% or moremore All other companies are deprived of this benefitAll other companies are deprived of this benefit

Thank you for your Thank you for your attentionattention

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Tax GDP Ratio in Bangladesh Tax GDP Ratio in Bangladesh lowest in the Region lowest in the Region Tax net must be widened

17.70%17.00%

15.50% 15.30%14.40%

10.70% 10.70% 10.20% 10.20%

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