Budget Overview:

On the backdrop of braking economic situation, the honorable Finance Minister presented the
budget for FY15 on June 5, 2014 targeting 7.3% growth. The finance minister of Bangladesh
himself recognized that the proposed budget of BDT 2506.05 billion for FY 15 is an ambitious
one. This budget is 15.9% higher than revised budget of FY14.
Government seems to be highly focused on bringing back economic growth, controlling inflation
and infrastructural development. Government plans to lower domestic rates to enhance private
sector credit flows to enhance investment. Government has targeted GDP growth of 7.3% in
FY15. Considering current economic condition of low investment and consumption confidence,
target of 7.3% seem to be a bit overly optimistic. Still effort to accelerate economic growth will
bring back momentum. Inflation rate target is 6%. Considering current stability of global
commodity prices, and falling domestic cost of fund, one can expect price levels to moderate
from this level. Government promised completion of Padma Bridge by 2018. This will boost
domestic construction sector companies. Targeted export and import growth rates are both 15%.
The budget for the FY15 has revenue target of BDT 1829.54 billion which is 16.8% higher than
FY14 revised budget and 13.7% of GDP. In the budget of FY15, the total expenditure has been
estimated at BDT 2,505.06 billion. This is 18.7% of GDP and 15.9% higher than that of revised
budget of FY14. Budget deficit for the FY15 is BDT 675.52 billion which is 5.0% of GDP and
27.0% of the budget.
Government has offered tax rebate and tax holiday benefits in least developed areas to expand
industrialization across the country. Moreover, government has attuned the import duty,
supplementary duty and VAT to foster the possible growth of local industries (e.g.;
Pharmaceutical, RMG and Textile and iron and steel industry etc). Government has proposed to
increase the tax incidence for tobacco companies again. There is also another proposal for 1%
Health Development Surcharge on all imported and domestically produced tobacco products.
These initiatives are appreciable as these are to reduce tobacco uses.
Budget cannot be said to be capital market friendly. On the contrary few measures were
discouraging. Especially capital gain tax introduction on individual level is a tough decision at
current shaky condition of capital market. The provision for 10% tax rebate for companies
declaring more than 20% dividend has been rescinded. Companies that give more than 20%
dividend had an effective tax rate of 24.75% after rebate of 10%. Now their effective tax rate
will rise by 275 basis points. In a way one can say this budget has increased tax rate for good
listed companies. On top of that, government has proposed to raise tax rate for listed companies
giving less than 10% dividend from existing 27.5% to 35%. Apparently, these tax initiatives will
slim the interest of private entities to be listed in the bourse.


Budget Highlights:












































FY15 FY14 FY14
(revised)
Revenue
Earnings
1,829.5 1,674.6 1,566.7
NBR tax
revenue
1,497.2 1,360.9 1,250.0
Non-NBR tax
revenue
1,497.2 1,360.9 1,250.0
Non-tax
revenue

276.6
262.4 264.9
Total
Expenditure
2,505.1 2,224.9 2,162.2
Non-
development
expenditure
1,282.3 1,134.7 1,160.0
Development
Expenditure
863.5 722.8 651.5
Other
Expenditure
359.3 367.5 350.8
Budget
Deficit
675.5 550.3 595.5
Financing Sources
Domestic
Sources
432.8 339.6 409.8
Bank
Borrowing
312.2 259.9 299.8
Non-Bank
borrowing
120.6 79.7 110.0
External
Sources
242.8 210.7 185.7
The finance minister has proposed the budget for the FY15
on 5
th
June of 2014 in the national parliament with a view to
maintaining continuity of existing monetary and fiscal
policy strategies.
The budget size is BDT 2505.06 billion which is 15.9%
higher than the FY14 revised budget and largest of its
history. The budget has revenue target of BDT 1829.54
billion which is 16.8% higher than the FY14 revised
budget. Projected deficit of the budget is BDT 675.52
billion which is 5.0% of GDP and 27.0% of the budget.
Non-development expenditure is BDT 1282.31 billion
which is 51.2% of the budget and development expenditure
is BDT 863.45 billion, 34.5% of the budget. Among the
types of total expenditures, public administration, education
and information technology and interest payment got higher
preference having 15.3%, 13.1%, and 12.4% allocation of
total budget respectively.
The total ADP size is BDT 803.15 billion which is 33.9%
higher than that of FY14 revised budget. In the ADP for
FY15, 24.3% is allocated to human resource sector
(education, health and others), 25.8% to overall agricultural
sector, 14.3% to energy sector, 23.3% to communication
sector and the rest 12.3% is allocated to other sectors.
From the summary table, it is evident that the government
has scaled up its revenue generation target to BDT 1829.54
billion, a rise from BDT 1674.59 billion of the FY14
revised budget. It has been increased by 16.8% from the
previous financial year revised budget. The targeted revenue
is 13.7% of the GDP, slightly up from 13.3% of GDP in
previous fiscal year. Estimated 13.7% revenue to GDP ratio
is still very low. Our Tax-GDP ratio (around 11.0% as of
FY14 revised budget) still lags behind many developing
countries.
The country's budget deficit in FY15 is set to be the widest
at 5.0% of the GDP in seven years since FY08. The total
Budget deficit is estimated to be BDT 675.52 billion. Out of
which domestic source will finance 64.1% and external
source will finance 35.9%. Out of domestic sources, Govt.
will borrow BDT 312.21 billion from the banking system,
which is 20.1% jump from the FY14 targeted bank
borrowing (but merely 4.1% up from the revised budget).

Table: Budget Overview FY15
Budget Overview
BDT in bn (FY15)
Growth over FY14
Revised Budget
Budget
Size
2,505.1
Budget
Size
15.9%
Target
Revenue
1,829.5
Target
revenue
16.8%
Budget
Deficit
675.5
Budget
deficit
13.4%
Bank
Borrowing
312.2
Bank
borrowing
4.1%
External
Borrowing
242.8
External
borrowing
30.7%

Chart: Budget Size (BDT bn)













Impact of Budget on Economic Indicators:


GDP

Government has set a GDP growth target of 7.3%. Target for FY14 was 7.2%. Achieved growth in FY14
is 6.12%. Actual achieved growth is originally lower than 6.0% if we consider FY96 base year. This year
BBS (Bangladesh Bureau of Statistics) changed its GDP calculation base to FY06.
Considering current economic condition of low investment and consumption confidence, target of 7.3%
seems to be a bit overly optimistic.
Inflation
Government had targeted to bring inflation down to 7.0% in FY14. They have been quite successful in
bringing inflation down. Inflation in Jun13 was 8.05%. Inflation came down to 7.4% in April, 2014.
For FY15, inflation has been targeted 6.0%. It has been assumed that global food and energy prices will
decline slightly. We also believe that commodity prices will be favorable. Domestic interest rates are
expected to go down.

Export
Export growth target was set 15.0% in FY14 budget. Export growth in July to April, FY14 was 13.8%.
One can assume that if there were no political hindrance this 15% growth is achievable. Export growth
target for FY15 is 15.0%. It is assumed that global economy growth will accelerate. We expect that if
global economy remains vibrant and domestic political scenario remains stable, this growth target is
achievable.
1138.19
1321.7
1635.89
1917.38
2224.91
2505.1
FY 2009-10 FY 2010-11 FY 2011-12 FY 2012-13 FY 2013-14 FY 2014-15
Import
Import growth target was set 10.0% in FY14 budgets. Import growth for July to March, FY14 was 11.1%.
Import growth was non-existent in FY13. So this come back of import growth is indication of increased
business activity ahead. Targeted import growth for FY15 is 15.0%.
Remittance
Remittance has declined by 4.8% till April 2014 of the current fiscal against last fiscal years growth of
12.6%. There was no specific target provided in the budget for FY15. It is stated that remittance is
expected to get back to normal growth trend in this fiscal.
Reserve
Foreign currency reserve has hit 20.2 billion USD at the end of May 2014 which was only 15.3 billion USD
at the end of last fiscal. This reserve is sufficient to foot the import bill of approximately six months.
Government expects trade deficit to widen and foreign exchange reserve to moderate a bit.

Impact of Budget on Different Sectors:
Pharmaceutical Sector

Budget Proposals Impact
Supplementary Duty (SD) rates on 40 (forty) basic raw
materials are proposed for reduction to 5 percent
concessionary rate from existing 10 percent and 25
percent.
Bangladesh pharmaceutical industry imports around 90%
of the raw materials. Therefore, reducing SD on forty basic
raw materials and fourteen raw materials of anti-cancer
drugs and medicines will slightly improve the Gross profit
margin of the industry, as the respective molecules have
market share around 8% of pharmaceutical industry.
The customs duties on 14 (fourteen) items used as raw
materials in the manufacture of anti-cancer drugs and
medicines are proposed to be fully exempted.
Withdrawal of retail level VAT on contraceptives. It will reduce the cost of consumer.
Increasing VAT on Erythromycin ethyl succinate;
Erythromycin stearate and Azithromycin (compacted or
micronised) from 5% 10%
Some local API producers have significantly substituted
Azithromycin and Erythromycin import by producing it
locally. Accordingly, government raises VAT on these two
APIs so that local API producer can compete with the
foreign manufactures.
Related Listed Companies: Square Pharmaceutical, Renata Ltd, Beximco Pharma, ACI, Glaxo SmithKline and Active

Animal Health
For further development of the poultry and cattle subsector, the duties and taxes on some new raw
materials and capital machineries are being proposed to be fully exempted. This initiative will improve
profit margin of the company. Among the quoted shares, Renata Ltd. has exposure in animal health
segment.

Table: Supplementary Duties on Animal Health (Withdrawal)
Proposals for exemption on food for poultry and livestock industry
SI No. Description Existing Rate(%)
Proposed SRO Rate
(%)
1 Sorghum 5 0
2 Millet 10 0
3 Guar meal 25 0
4 Zeolite (Powder/Granular) 10 0
Proposals for exemption on equipment for poultry and livestock industry
SI No. Description Existing Rate (%)
Proposed SRO Rate
(%)
1
NaCl solution special grade used in artificial
insemination
10 0
2 First aid boxes and kits 5 0
3 Gynocological lubricant (in flask) 5 0
4 Bullexcell QSF/ Biexcell QSF 10 0
5 Cow Pregnancy Test Kits 5 0
6 Universal Syringe for artificial insemination 25 0
7 Plastic canister 25 0
8 Leather gloves for nitrogen handling 10 0
9 Pyrex Granduated collection tube 10 0

Fine Ltd
Tobacco Industry
Value slab for all the segments have been raised. Supplementary duty for Low, Mid and High segment
has been raised. These are pass-through costs. Historically, Supplementary duty raise has not
impacted margins of BATBC. In the premium segment value slab has been raised, but supplementary
duty has not been raised. So premium segment gross margin will improve. In all other segments also
value slab rise is higher than supplementary duty rise. So, gross margin will be impacted positively.
One percent Health Development Surcharge on all imported and domestically produced tobacco
products has been imposed. We believe tobacco companies will pass through this cost also.
Budget proposed fixation of price of 25 sticks non-filter bidis at Tk. 6.14 and 20 sticks filter bidis at Tk.
6.94 from 5.35 and 6.05 respectively.


Table: Value slab and Tax incidence of Cigarette containing Tobacco
2013-14 2014-15 2013-14 2014-15 2013-14 2014-15
Existing
Value slab
for (10
sticks)
Proposed
value slab
for (10
sticks)
Existing
Supplementary
Duty
Proposed
Supplementary
Duty
Existing
Supplementary
Duty plus VAT
Proposed
Supplementary
Duty plus VAT
13.69-13.91 15-16.50 39% 43.00% 54% 58%
28-30 32.5-50 56% 60.00% 71% 75%
42-45 50-54 59% 61.00% 74% 76%
80 & Above 90 & Above 61% 61.00% 76% 76%

Textile Industry
Tax at source on cash incentive has been reduced to 3.0% from existing 5.0%. Tax at source on
garments export has been reduced from .8% to .3%. These preferential rates will be effective till
June 2015.
Reduction of CD on flex fiber (from 10.0% to 5.0%) and artificial staple fiber (from 5.0% to 3.0%) would
likely to reduce production cost of specific textiles companies.
The Budget proposes to reduce supplementary duty on woven fabrics from the existing 30.0% to
20.0%, on most knitted or crocheted fabrics from 45.0% to 30.0%, on track suits and other garments
from 45.0% to 30.0%, and on various clothing accessories form 60.0% to 45.0%. This has nothing to
do with domestic woven and knit fabric manufacturers. This is beneficial for domestic consumers.


Fuel & Power Industry
Budget Proposals Impact
Theres proposal to raise the import duties on LPG
cylinders from 5% to 25%. But theres also proposal
to withdraw the rebate facility on import of LPG
making industrys capital machinery.
These propositions will make the import more costly
hence increasing local demand. On the other hand
setting up new LPG making companies will be more
expensive. Related Companies: MJLBD
Gas transmission companies maximum tax at source
on bill receipts is proposed to be reduced from 5% to
3%.
Gas transmission companies profitability will
increase. Related Companies: TITASGAS
Oil distribution companies have to pay source tax of
1% on the bills of oil supplied to the dealers and
agents (except petrol pumps).
We do not have information on how much oil is
distributed through petrol pump. But one can assume
that this source tax will require some fund
engagement which they could otherwise have
deposited in banks. This amount will not be
significant. Our rough estimate is a oil distribution
company with 2 million MT distribution will lose
around BDT 20 million interest income opportunity
from this. Related Companies: Meghna Petroleum,
Jamuna Oil and Padma Oil




Engineering Industry
Budget Proposals Impact
Customs duties on raw materials used in domestic
paper, glass and ceramics, rubber, furniture, paint,
electrical and plastic industries are being proposed to
be re-fixed at 5% and 10% which is currently fixed at
10% and 25% respectively.
Local industries will be more competitive as the cost
of raw materials will be decreased.

It has been proposed to allow the export-oriented
RMG sector to import the raw materials necessary for
manufacturing prefabricated buildings without duties
on certain conditions. At present there are 5% to 25%
duties applicable on these materials. In addition to
that, the existing duties on fire resistant door,
emergency light, sprinkler system etc. are being
proposed to be fully exempted.
Prefabricated building industry is currently at its
initial stage. This facility will decrease cost of raw
materials of those firm which supply their products to
export oriented companies. It will accelerate the
industry growth. Related Companies: BDBUILDING

Concessionary duty rates on most inputs of ship
building industry is proposed to be extended. The
existing duties on navigation light, broadcasting
equipment and fire extinguishers are proposed to be
fixed at 5 percent only from existing 15%.
Ship building industry is currently facing demand
shortage. These facilities will help the industry to
sustain and lure demand from buyers as their cost
will decrease. Once the demand gets back backward
linkage industry will also be benefitted. Related
Companies: Western Marine Shipyard, LINDEBD
Theres proposal for enhancement of import duties
on billet and ingot from BDT 3500 per MT to BDT
5000 per MT. Besides, therell be exemption on billet
manufacturing raw materials i.e. sponge iron,
reduced iron.
These proposals will promote and protect local billet
manufacturing company. Though billets are currently
locally produced but countrys total billet
consumptions major portion comes from import.
Enhancement of duties will make billets more costly
and increase the price of the steel production.
Related Companies: BSRMSTEEL, GPHISPAT (Both
are the producer of Mild Steel products and Billets)
Theres proposal of fixation of customs duty at 25%
on energy saving bulbs and electric fan motors. VAT
of 15% is imposed on parts of compact energy saving
fluorescent lamps.
Itll safeguard the interest of local industries and
reduce tariff anomalies between locals and imports.
But 15% VAT on parts of energy savings lamp will
increase the production cost. Related Companies:
BDLAMPS
Telecom Industry
Budget Proposals Impact
Fixed tax of BDT 100 on the supply of every single piece of
replacement SIM is imposed.
It is proposed to impose BDT 100 as a fixed tax for SIM
replacement which was previously nothing. Eventually it
will slightly increase operating expenses of mobile
operators.
Import tax on SIM card has been reduced to 15.0% from
20.0%
Import tax on SIM card has been reduced to 15.0% from
20.0% in FY15 budget which was 30.0% in FY13. This
decrease might reduce operating expenses of telecom
operators marginally.
15.0% VAT on mobile phones is imposed at the import
stage which was previously 10.0%
The increase of import tax on mobile phones might make
it difficult for the rural population to buy a mobile
handset. Ultimately, telecom operators will face
difficulties in rural penetration which is the current growth
segment for telecom operators.
Related Companies: Grameen Phone Litd


Capital Market:

Budget FY15 did not have much to offer to boost the capital market. On the contrary some decisions
are going to lower corporate profitability of listed companies and incentive to get listed in the process
by prospective companies.

Tax rate of non-listed companies has been reduced to 35.0% from existing 37.5%. Tax rate for publicly
Construction and Building Materials Industry
Budget Proposal Impact
Theres a total allocation of BDT 187.12 billion for communication
infrastructure in ADP which is 84.5% higher than the FY14
revised budget. 46.7% of this allocation has been reserved for
bridge division due to the construction of Padma Bridge.

This allocation will boost the demand of Cement, Steel,
Electrodes and related industry. Related Companies:
HEIDELBCEM, LAFSURCEML, CONFIDCEM, MICEMENT, LINDEBD,
BSRMSTEEL, GPHISPAT

traded companies has been kept unchanged at 27.5%. These sorts of decisions discourage listing.
Many companies get listed to get tax advantage.
The provision for 10.0% tax rebate for companies declaring more than 20.0% dividend has been
rescinded. This will increase effective tax rate for companies that used to pay more than 20.0%
dividend. Companies that give more than 20.0% dividend had an effective tax rate of 24.75% after
rebate of 10%. Now their effective tax rate will rise by 275 basis points.
It is also proposed to raise tax rate for companies giving less than 10.0% dividend from existing 27.5%
to 35.0%.
Capital gain tax has been introduced at individual level. Previously only companies had to pay capital
gain tax of 10.0%. In the proposed budget a capital gain tax of 3.0% has been introduced for capital
gain exceeding BDT 1 million but not exceeding BDT 2 million. For capital gain exceeding BDT 2
million capital gain tax of 5% is proposed.


Corporate tax rate reduction of non-listed companies will benefit conglomerate companies with
number of unlisted subsidiaries and associate companies. As tax burden of those unlisted
subsidiaries will decrease, overall consolidated profit will increase.
Tax free dividend income limit has been raised to BDT 15000 from existing BDT 10000.
Demutualized exchanges have been given five year tax rebate.