The proposed budget for FY2018–19 has not come up with incentives and measures that can give a boost to the construction sector. Professionals in the industry say that they have not seen any measure that can help reduce prices of key construction raw materials.
In his budget speech on June 7, Finance Minister AMA Muhith proposed a reduction of regulatory duty on import of raw materials—that of ferro alloy from 15 percent to 10 percent, and a cut of specific customs duty on import of sponge iron from Tk 1,000 per tonne to Tk 800 per tonne—in order to keep both the production costs and the market prices of mild steel rod low.
“However, the combined benefit will not be more than Tk 100 per tonne,” says Tapan Sengupta, executive director of BSRM Group.
Manwar Hossain, chairman of Bangladesh Auto Re-rolling and Steel Mills Association (BARSMA), says that customs duty cut on sponge iron will not have any impact in bringing down the prices of rod as the country imports the raw material from India under duty drawback facility.
Before the budget, the BARSMA called for slashing of customs duty from Tk 1,500 per tonne on the import of scraps, a non-negotiable raw material for steel, to arrest the escalating prices in the local market. But the demand is not reflected in the proposed budget.
Hossain says that the high price of scraps in the international market, congestion at the Chittagong port, high transport costs, and high prices of gas and electricity all contribute to the higher price of rods. Rod prices average Tk 62,000 per tonne to Tk 64,000 per tonne at present, up from Tk 52,000 to Tk 54,000 a tonne last year, according to him.
Meanwhile, Toufiq M Seraj, managing director of Sheltech (Pvt.) Ltd, says a measure was highly expected to rein in the prices of rods and bring it down because the real estate business will not be sustainable at the current price of the key construction material.
Rod prices should go down further, says Tanveerul Haque Probal, a director of the Bangladesh Association of Construction Industry, as well.
Before the budget, cement manufacturers had called for a waiver from advance income tax on imports for raw materials and spares until the unadjusted income tax is fully adjusted, cut of clinker import duty to five percent, and reduction of corporate income tax.
The budget has been extremely disappointing for the cement sector, says Masud Khan, CEO of Crown Cement Group.
“There is no relief for the sector currently reeling from losses due to major cost escalation and competitive pressure and high working capital,” he says.
The proposed budget, however, has brought some relief for the real estate sector.
At present 1.5 percent valued-added tax (VAT) is applicable on the sale of flats of sizes up to 1,100 square feet, 2.5 percent VAT on flats of sizes up to 1,101–1,600 sft and 4.5 percent VAT on flats which are above 1,600 sft.
In order to incentivise the real estate sector, Muhith proposed to fix two percent VAT on the sale of flats of any size less than 1,600 sft and keep the rate unchanged on flats bigger than 1,600sft. Moreover, he also proposed two percent VAT on the resale of any flat irrespective of the size.
Alamgir Shamsul Alamin, president of the Real Estate & Housing Association of Bangladesh (REHAB), welcomed the VAT cut on flats of sizes of 1,101–1,600 sft.
“As most flats sold in Bangladesh belong to this category, the cut will give some relief to the buyers,” he says. However, he says, there is no logic to hike the VAT on the sale of flats of sizes less than 1,100 sft.
His thoughts are echoed by Seraj of Sheltech: “From a monetary point of view, this VAT might not look much higher, but it matters to this segment of buyers. We will have to make small flats affordable,” he says.
Debapriya Bhattacharya, a distinguished fellow of the Centre for Policy Dialogue, criticised the proposal of increasing the VAT on flats smaller than 1,100 sft and cutting the rate on 1,101–1,600 sft flats.
“Through this, pressure is being created for the low income group. On the other hand, rebate has been given to the rich,” he says.
The REHAB has however welcomed the finance minister's decision to continue the provision allowing investment of untaxed money in the real estate sector through fines.
But Alamin, expresses dissatisfaction as the overall flat registration costs, amounting to 14 percent, was not reduced as per the demand of the REHAB.
“The sector will be vibrant if the cost is reduced,” he says.
Muhith has also proposed to raise VAT from six percent to seven percent on contractors who construct, repair or maintain buildings, transport systems, roads, highways, and bridges, among other infrastructures.