High tax, poor business environment drive away foreign investments

New investments have dropped across the world amid the pandemic, but when investments were diverted from China, Japan and Europe, Bangladesh fell behind its competitors to grab them.

High interest rate, weak infrastructure, environment not conducive to business and no incentive for investors are the reasons why Bangladesh failed to draw new investments, said the Foreign Investors' Chamber of Commerce and Industry (FICCI) in a webinar on Wednesday.

Placing a report on foreign direct investments, Masrur Reaz, chairman of Policy Exchange, said Bangladesh received the lowest FDI compared to its competitors.

The amount of FDI from January to September 2020 fell 19.5% from a year earlier. Around the same time, Vietnam saw FDI drop by only 3.2% and Indonesia 5.15%.

However, FDI in developing countries came down at an average rate of 12%.

Masrur said FDI in Bangladesh was less than in other emerging markets even before the pandemic. While Vietnam received $16 billion and Indonesia $23.56 billion in 2019, Bangladesh received only $1.59 billion.

In his analytical report, Masrur said foreign investors study global indexes before putting funds in businesses, and Bangladesh ranked 168th on the ease-of-doing-business index among 190 countries.

Out of 140 countries, Bangladesh is 69th on the burden of government regulations index and 84th on efficiency of legal framework index.

Masrur thinks all these indicators are putting up obstructions to foreign investments. 

Bangladesh had the opportunity to draw investments from countries including China and Japan but it could not explore those, said Mahbub ur Rahman, chief executive officer of Hongkong and Shanghai Banking Corporation.

India set an example amid the pandemic by attracting huge foreign investments and it offered incentives to foreign companies, he said.

Salman Fazlur Rahman, private sector industry and investment adviser to the prime minister, said that to attract FDI, Bangladesh Investment Development Authority (BIDA) had provided many opportunities to foreign companies.

The communication network through ports and roads have been improved alongside better utility services. But investors give priority to India because its consumer base is large, Salman F Rahman said.

"The main complaint around investments is bureaucratic tangles. We are working on it. The situation has changed fast."

Bida launched seamless and one-stop services. When it comes to incentives, local and foreign companies are getting equal opportunities for business, Salman F Rahman said.

Masrur said corporate tax in Bangladesh was higher than in its competitors. While it is 35% in Bangladesh, it is 30% in India, 28% in Sri Lanka and 20% in Afghanistan and Vietnam.

In Myanmar and Indonesia, corporate tax is 25%. Malaysia imposes 24% corporate tax and Singapore 17%.

On top of corporate tax, high VAT and complications in the VAT law play as discouraging factors for investments, Masrur said.

Moreover, inconsistencies in the tax law are preventing investments from coming in, said FICCI President Rupali Chowdhury.

Salman F Rahman acknowledged tax-related complications in Bangladesh.

"Our tax-GDP ratio is poorer than neighbouring countries. The National Board of Revenue is exerting pressure on the existing taxpayers to meet its target for not being able to expand the tax net. We have to solve this problem."

Steps have been taken to digitalise taxation.

FBCCI Vice-President and CEO of Unilever Bangladesh Kedar Lele said foreign organisations played a role not only in employment generation but also in creating talent manpower.

There is great scope of foreign investments because of the labour force. But weak infrastructure, regulatory issues and weak linkage connectivity are the reasons why foreign companies are reluctant to come here, Lele said.