Govt to offer tax breaks, simplified services to boost FDI

Amid sluggish foreign direct investment (FDI) inflows, the government has decided to introduce a set of policy incentives – including simplified services, tax exemptions, and easier foreign exchange transactions – to attract more FDI, according to Finance Division sources.

To this end, the Chief Adviser's Office on 29 May issued a notification forming a five-member committee led by Finance Adviser Dr Salehuddin Ahmed.

The committee has been tasked with submitting its recommendations on increasing FDI through incentives before the national budget is passed on 30 June. The final budget will incorporate the committee's suggestions.

Other members of the committee include Bangladesh Bank Governor Dr Ahsan H Mansur, National Board of Revenue (NBR) Chairman Md Abdur Rahman Khan, and Finance Division Secretary Dr Md Khairuzzaman Mozumder.

Bangladesh Investment Development Authority (Bida) Executive Chairman Chowdhury Ashik Mahmud bin Harun has been appointed as the committee's member-secretary.

Foreign investors say Bangladesh presents numerous investment barriers, including difficulties in accessing policy incentives offered by the government. These incentives often involve bureaucratic hassles and lack consistency. Some benefits require navigating complex procedures.

They also point to gas and electricity shortages, underdeveloped port and transport infrastructure, and a shortage of skilled labour. High bank interest rates, weak law enforcement, political uncertainty, high inflation, and corruption further deter investment.

Rupali Haque Chowdhury, former president of the Foreign Investors' Chamber of Commerce and Industry (FICCI) and managing director of Berger Paints Bangladesh Ltd, told TBS, "Reducing corporate tax and promoting cheap labour alone will not attract FDI. Bangladesh must benchmark its policies against those of other countries."

"When offering economic zones, we need to assess what facilities investors receive in zones abroad. Legal and policy consistency is also essential," she added.

Ease of access to incentives key to FDI

Dr Zahid Hussain, former lead economist at the World Bank's Dhaka office, told TBS that instead of introducing new policy incentives, the government should first simplify access to the ones already in place.

"Previously, tax holidays and economic zone facilities failed to attract significant foreign – or even domestic – investment. The main issue is the cumbersome, time-consuming, and costly processes required to avail these benefits," he said.

Citing examples, he noted that while foreign investors are granted visas, they are often short-term and single-entry, limiting ease of travel. Trade licences are issued but must be renewed annually. Similarly, duty-free import facilities are offered but come with complex conditions.

"These limitations reduce the effectiveness of the incentives. To truly attract investment, the process of accessing these facilities must be made easier," he added.

In a circular issued on 25 May, the Office of the Chief Adviser announced that from 1 July, 134 types of business and investment-related services provided by 44 ministries, departments, agencies, and local government institutions will no longer be delivered manually – they will be provided online instead. Another 56 services from 27 entities will also move online from 31 August.

Sluggish FDI inflows for years

In FY24, the private investment-to-GDP ratio stood at 23.51%, down from 24.18% the previous year, indicating a decline in private sector investment.

FDI, a key component of private investment, has also remained sluggish for years.

According to Bangladesh Bank data, net FDI inflows in the first nine months (July–March) of FY25 stood at $860 million, down 26% from $1.16 billion during the same period the previous fiscal year.

Another central bank report shows that total FDI inflows in 2024 amounted to $4.27 billion, but $3 billion of that was repatriated by foreign investors. As a result, net FDI stood at $1.27 billion, down from $1.46 billion in 2023.

Central bank officials noted that many foreign investors reinvested their profits due to the ongoing dollar crisis, as they were unable to remit earnings to their parent companies. Without this reinvestment, net FDI would have fallen even further.