Budget targets investment revival amid record-low credit growth

The government is set to announce a broad package of investment incentives in the national budget within hours in an effort to revive business activity after private sector credit growth fell to a record low.

Credit growth dropped to 4.72 percent in March from 6.03 percent in February, marking the lowest level since Bangladesh Bank began keeping records in 2003.

The proposed measures include tax concessions, duty exemptions and regulatory reforms aimed at lowering financing costs and attracting both domestic and foreign investment. 

Existing corporate tax rates will remain unchanged to reassure investors, although the finance minister signalled that rates may be reduced gradually in future budgets as the tax base expands.

To reduce industrial financing costs, the withholding tax on machinery lease payments to non-residents will be cut in half to 7.5 percent. The tax on interest payments for foreign loans will also be reduced to 10 percent from 20 percent.

The government has also proposed setting up free trade zones that will allow duty-free imports of goods for export, processing, manufacturing and warehousing. 

In addition, the current 49 percent cap on foreign ownership in private off-docks and inland container depots will be removed to attract more foreign direct investment and expand the logistics sector.

New regulatory frameworks will also cover air cargo operator stations and private port and terminal operators.

Green energy and high-tech industries are set to receive the largest share of sector-specific incentives. Solar power materials will be exempt from import, regulatory, supplementary and advance taxes until June 2031.

The electric vehicle (EV) sector will receive tax and duty exemptions for manufacturing and local component production. EV chargers will be allowed to be imported duty-free, while imported EVs will face lower taxes.

Semiconductor manufacturers will see import duties capped at 1 percent until 2031 and will be exempt from other taxes.

Tax and duty benefits for electronics, including mobile phones, refrigerators and other digital devices, will be extended until June 30, 2030.

For startups and SMEs, the turnover tax will be waived. SME entrepreneurs will not pay income tax on earnings up to Tk 50 lakh, with the threshold rising to Tk 70 lakh for women and disabled entrepreneurs.

Tax exemptions will also be expanded from IT freelancing to all types of freelancing and content creation income.

To encourage investment outside Dhaka and Chattogram, accelerated depreciation will be introduced. Businesses in manufacturing, tourism and sports located outside these city corporation areas will be allowed 60 percent depreciation in the first year and 40 percent in the second year.