Massive tax rebates mulled for FDI shifting from China

In order to attract foreign investments moving out of China, the committee formed by the Prime Minister's Office has given its nod to several proposals, including reducing the existing VAT rate from 15% to 12%.

It has also positively considered lowering the corporate tax rate from 35% to 25% to keep up with the rival countries, and providing a maximum of 10-year tax holiday. 

In addition, the committee has recommended increasing the 100% tax holiday facility for industrial establishments that are in operation and also under construction in the economic zone from the current three years to four years. 

In case of non-delivery of services from the One-Stop Service Centre within the stipulated time, the committee has recommended to consider that the service has been approved as soon as the time has elapsed.

The committee chaired by Principal Secretary to the Prime Minister's Office Dr Ahmad Kaikaus has discussed these in its Wednesday's meeting but the final decision was not made. 

It was formed to formulate an overall strategy and future plans to attract foreign investments and to make recommendations.    

Kaikaus has asked the Bangladesh Bank, the National Board of Revenue (NBR), and the finance ministry to submit recommendations to the Prime Minister's Office soon to finalise the incentive package.

Several officials attending the meeting told The Business Standard corporate tax rate is 20% in Vietnam and Thailand. India has reduced the corporate tax rate from 30% to 22%, and this rate for new enterprises in the industrial sector is 17%. 

In order to attract foreign investments, the corporate tax rate in Bangladesh can be reduced by 10% to stay competitive.

The NBR, however, has opposed the policy to attract foreign investments only by providing tax breaks. 

Its chairman Abu Hena Md Rahmatul Muneem told the meeting that it is not possible to generate the required amount of revenue by providing huge tax breaks. Moreover, local entrepreneurs should be given the same concessions as foreigners. Otherwise, local businessmen will face an unequal competition.

Kaikaus told the meeting the tax structure should be closer to that of the competing countries. However, utmost importance should be given to make the business environment easier. It is not possible to get foreign investments just by offering tax exemption.

Governor of the Bangladesh Bank Dr Fazle Kabir said several circulars have been issued to attract foreign investments. A draft has been formulated to modernise the foreign exchange regulation act.   

The committee said in case of companies other than tobacco and mobile service providers, VAT rate could be reduced to 12% for the next two years. VAT is 7% in Vietnam, and 10% in Thailand and Cambodia. Before setting up industries in the economic zone, VAT has to be paid at the rate of 15% on the lease price, which the committee recommended to scrap, saying such VAT is not required to be paid in India, Vietnam and Thailand.

The committee thinks a 100% tax holiday can be offered for the first seven years for investments in high value-added and modern technology based industries like semiconductors, robotics, automobiles and medical equipment of advanced technologies. 

It was also discussed that cash incentives can be given for five years to investors in backward linkages of these industries. 

The committee talked about allowing 100% tax holiday for the first five years and 50% for the next five years to research and development centres, innovation centres and companies producing skilled manpower. 

If more than $100 million is invested, there will be a 50% tax holiday for the first seven years, said the committee. If investment is more than $200 million, it will be 50% for the next three years.

The committee proposed a 100% tax break for the first seven years, and 50% for the next three years for investments that start production within maximum one year after land allotment and create permanent employment for at least 300 people. 

It said there would be a 100% tax break for 10 years for investment in backward areas.

Bangladesh Investment Development Authority Executive Chairman Sirazul Islam, and Bangladesh Economic Zone Authority Executive Chairman Paban Chowdhury attended the meeting among other officials of the finance ministry, Bangladesh Export Processing Zone Authority, Bangladesh Hi-Tech Park Authority, and Public Private Partnership Authority Bangladesh.     

Meanwhile, a high-level task force chaired by Commerce Minister Tipu Munshi has been formed to attract foreign investments. A meeting of the task force scheduled for June 18 could not eventually be held as the minister had tested positive for coronavirus.