Economic zone investors fear sudden changes in tax policies: Outgoing Beza EC

The budget proposal for fiscal year 2024-25 had recommended withdrawing several benefits for investors in the country's economic zones, which hurt their confidence in the government's tax policies as concerns surfaced regarding the impact on foreign direct investment and ongoing businesses, said Shaikh Yusuf Harun, the outgoing executive chairman of the Bangladesh Economic Zones Authority (Beza).

Although these incentives were later restored, the initial withdrawal led to some loss of trust as investors feared similar withdrawals in the future, he said.

In a brief interview on 4 July with The Business Standard on his last working day, he was discussing the challenges faced by Beza.

Talking about the loss of investors' trust in economic zones, he said, "Investing in economic zones will provide a 10-year tax holiday and exemption from duties on the import of capital machinery. After receiving such promises from the government, both local and foreign entrepreneurs invested in private economic zones. 

"The proposal placed in the budget stating the withdrawal of these benefits in economic zones causes investors to lose confidence."

While talking about increasing investment in economic zones, Harun said, "The government should look into some policy issues.

"According to the VAT law, benefits should be withdrawn only after discussing with the parties concerned. However, the NBR did not consult us before withdrawing the benefits."

He said, "Although the previous benefits have been reinstated with the prime minister's support, it has caused some trust issues among investors. 

"Many investors have expressed concerns, stating that while the situation has returned to its previous state now, they worry about what will happen if the duties are re-imposed in the future."

"I believe we can overcome this lack of trust. However, for this to happen, the government's policies must remain consistent. Long-term stable policies are crucial for attracting investment," he added.

If the proposal had been passed in the budget, economic zone investors would have had to give up to 27.5% corporate tax and 1% duty on both capital machinery and raw materials import.

Beza was formally established in 2010 under the provisions of the Bangladesh Economic Zones Act, 2010. The primary goal of Beza is to establish economic zones in all potential areas, including backward and underdeveloped regions, to encourage industrialisation, employment, production, and the growth and diversification of exports. 

Initially, the target was set to establish 100 economic zones across the country by 2030. However, Beza has now revised this target to 2041.

When asked why the implementation of economic zones was progressing slowly and what the challenges were, the former executive chairman said there were three major challenges - budget support, regulatory constraints and inter-agency cooperation.

Harun said, "We need budget support from the government and development partners to implement our development projects. This will make it easier for Beza to implement economic zones and facilitate the investors."

Regarding regulatory restraints, he said, "Beza's current regulations pose certain limitations and we cannot operate outside the provisions of the Beza Act.

"For example, we have land and investors are ready to develop it, but we cannot sign contracts with individual developers without going through a tender process."

"Though this legal restriction is there to prevent corruption, I suggest forming a committee and granting them power to assess market rates so that there is no corruption. Whoever has money will invest as a developer," he added.

Harun further said, "Beza needs regulatory support. The government must decide whether Beza should create its own zones or rely on private developers to develop zones on Beza's land. 

"If we continue creating government zones, it requires substantial government support. Alternatively, we could lease land to large industrial groups for zone development, reducing the financial burden on the government," he added.

Referring to the third challenge, he said, "We require open-minded cooperation from other supporting agencies, such as the Water Development Board, the Electricity Department, and the Ministry of Water Resources. These entities need to collaborate more freely with Beza to meet investor demands."