Industries in the country, including leading conglomerates, are under growing strain as they grapple with a series of escalating challenges – from high interest rates and foreign currency shortages to rising operational costs.
Already reeling from political instability, labour unrest, and stringent enforcement actions by the National Board of Revenue (NBR), many business leaders now fear that the national budget for the new 2025-26 fiscal year will further hinder their operations.
The new budget has raised corporate and turnover taxes, sparking widespread concern across the private sector.
For companies not listed on the stock market, corporate tax has been increased by 2.5 percentage points to 27.5%. While companies conducting transactions through banks or other formal channels will continue to pay 25%, meeting the requirements for this rate may prove difficult for many.
Additionally, the turnover tax has risen. Businesses with annual turnover exceeding Tk3 crore must now pay 1% tax, up from 0.6%, regardless of whether they make a profit.
This added burden comes at a time when firms are already grappling with inflationary pressures and diminishing margins.
At a press conference on Saturday, Bangladesh Textile Mills Association (BTMA) Vice President Abdullah Al Mamun warned that the new tax measures would deal a heavy blow to the industry.
“The sector is already struggling with soaring energy costs, high labour expenses, and declining export incentives,” he said.
The tax, which applies to imports of key raw materials like cotton and synthetic fibres, is technically adjustable, though industry leaders are sceptical about its practical implementation.
Business figures argue that the country’s overall business environment is deteriorating, although no formal index currently exists to measure it. They point to a complex mix of global volatility and domestic instability affecting trade, investment, exports, supply chains, currency markets, and GDP growth.
According to Bangladesh Bank, private sector credit growth dropped to 6.95% by the end of May, down from 10.35% in the same month last year.
Rizwan Rahman, former president of the Dhaka Chamber of Commerce & Industry, told the media, “Even though world-class economists are at the helm, the budget lacks positive reforms.
There’s no confidence among the business community. Until the NBR automates its VAT collection system, the Advance Income Tax (AIT) should not be increased. Like other Asian nations, we must implement a more tolerant tax structure to foster investment, employment, and industrial growth.”
Concerns are rising across the wider business community.
Shams Mahmud, president of the Bangladesh Thai Chamber of Commerce and Industry, described the situation as increasingly untenable.
“Industries are facing multiple shocks – the abrupt rise in energy prices, the weakening of the taka, and the removal of the interest rate cap,” he told the media.
“We had hoped for bold reforms to boost our competitiveness. Instead, we’re witnessing a growing disconnect between key government ministries,” he added.
Credit growth stagnates as interest rates soar
Previously, under the Awami League government, commercial lending rates were capped at approximately 9%. However, in alignment with IMF conditions, the central bank began raising its policy rate, which now stands at 10%, up from 5%.
Consequently, interest on commercial loans has surged to between 16% and 18%, compared with just 8% to 9% a few years ago.
This sharp rise is squeezing profit margins and raising business risks.
Bangladesh Bank’s data shows that credit growth to the private sector dipped below 7% for several consecutive months in early 2025, reaching a 21-year low of 6.82% in February.
Although it briefly recovered to 7.57% in March, it slipped again to 7.50% in April, and stood at 6.95% in May.
Additionally, letters of credit (LCs) for capital machinery, a key indicator of investment appetite, plummeted in the first 10 months of the just-concluded 2024-25 fiscal year. LC openings fell by 27.46%, and settlements by 25.56%, compared to the previous year.
Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank Limited, noted, “There is currently weak demand for credit in the private sector. To revitalise lending, confidence must be restored and political stability ensured.”
Govt bank borrowing hits Tk78,000cr
Compounding private sector concerns is the government’s rising appetite for bank credit. In FY25, the government borrowed a net total of Tk78,483 crore from the banking system.
As of 29 June, outstanding government loans from banks stood at Tk552,973 crore, up from Tk474,490 crore a year earlier. Notably, borrowing from commercial banks increased sharply, rising by Tk129,664 crore to Tk448,105 crore. Meanwhile, repayments to Bangladesh Bank amounted to Tk51,181 crore, bringing the outstanding debt with the central bank down to Tk104,468 crore.
Although overall borrowing remained within the revised target of Tk99,000 crore, down from the original Tk137,500 crore, experts warn that continued heavy borrowing from commercial banks could crowd out the private sector and stifle investment.
Rising import costs and external trade headwinds
The high dollar exchange rate remains a pressing issue for importers.
Though somewhat stabilized – currently at Tk122–123 per dollar – importing raw materials has become significantly more expensive compared to two years ago.
This is cutting into profit margins and reducing export competitiveness.
External trade tensions are also emerging.
The United States has introduced retaliatory tariffs, and trade frictions with India have worsened. India has blocked imports of several Bangladeshi products via land ports, severely affecting exports to its northeastern states. Many fear that exports to India could decline markedly.
There are also concerns that further counter-tariffs under a potential second Trump administration could disrupt Bangladesh’s access to its largest export market.
Courtesy: Daily Sun.
Bd-pratidin English/TR
