How Have the Sectors Been Impacted by This Year’s Budget? – Part VI

ICT & Hardware

The budget, which was announced on the 11th of June, is the largest yet in Bangladesh’s history with a set target of BDT 568,000 crore for the fiscal year 2020-2021. 

The finance minister has proposed allotting BDT 4,561 crore (0.8%) for the Information and Communication Technology (ICT) and Posts and Telecommunications Division in the 2020-2021 fiscal year. 

Of the total amount, BDT 1,415 crore was proposed to be allotted for the ICT Division which is BDT  223 crore (18%) more than the previous fiscal year. BDT 3,146 crore was proposed for the Posts and Telecommunications Division, from which BDT 1,138 crore is to be allotted to the Bangladesh Telecommunications Company Ltd.

Positive Impact on the Domestic Industry

• To encourage the environment-friendly solar energy sector, the budget proposed to exempt VAT on up to 60 AMP solar battery production for partner organizations of Infrastructure Development Company Limited.
• The budget proposed to continue the existing VAT & SD exemption in respect of industries such as automobiles, refrigerators, freezers, air conditioners, mobile industries, etc.
• To encourage the growth of the local ICT manufacturing sector, The VAT rate on the local supply of Router (HS code 8517), Loaded PCB (HS code 8529) and Printed Circuit Board (HS code 8534) has been reduced from 15% to 5%.

Negative Impact on the Domestic Industry

• Duty increased from 10% to 15% on services provided through mobile phone SIM/ RIM cards. Mobile phone users will have to pay higher bills as supplementary duty is set to increase to 15 percent from the existing 10 percent in the proposed budget for the fiscal year 2020-21, increasing the total tax to 33.25%.
• A hike in import duty rate has been proposed on imported mobile phones.
• Television, online shopping, aluminum products, and printer ink also may see a hike in duty.
• A 10% Advance Tax will be applied to digital advertisements from the 2020-21 fiscal year.

The government has sought to extend tax holiday benefits to seven new sectors from the next fiscal year to encourage the expansion of manufacturing activities. Exemption from tax to be granted to the following newly established industrial undertakings set up within June 2024 – 

• Electrical transformer
• Artificial fiber or manmade fiber manufacturing
• Automobile parts and components manufacturing
• Automation and robotics design, manufacturing, including parts and components
• Artificial intelligence-based system design and/ or manufacturing
• Nanotechnology-based products manufacturing
• Aircraft heavy maintenance services, including parts manufacturing

With the addition of the above seven sectors, the total number of industrial sectors eligible to enjoy tax exemptions has increased to 33. This will enable domestic enterprises to grow. However, the usage of the facility should be monitored to avoid misuse.

Emphasizing the hi-tech park and software sector, seven hi-tech park development projects are getting priority in the forthcoming budget, despite the fall in allotment of money in the sector.  Around BDT 445 crore has been proposed for these projects.

Author: Mehad ul Haque, Senior Business Consultant and Project Manager Ishtiak Mourshed, Business Analyst, LightCastle Partners Ltd.

As part of LightCastle’s budget analysis, we look into the direct and indirect impacts of this year’s budget on different sectors. While some of the sectors have received significant policy assistance, others have been cast aside in the government’s attempt to salvage additional revenues for financing the budget. The economic contribution and perceived importance of the sector were key considerations while deciding whether the sector will be eligible for policy support. In this write-up, we look into the immediate-term impacts of the budget on the ICT & Hardware Sector.

References

• 1. Seventh Five Year Plan FY2016 – FY2020 – GED
• 2. Economic Transition and Pathway to Progress – Ministry of Finance
• 3. Bangladesh Overview – The World Bank
• 4. Pandemic fallout: Power sector stares at big loss – The Business Standard