Only 17 startups apply for govt’s sandbox scheme to avail tax benefits

Infograph: TBS

In a time when tax benefits are what businesses, especially the small ones, always look for, only 17 startups have applied to register with the government's Startup Sandbox, a tax benefit scheme offered to new entrepreneurs to help them rise to prominence.

People associated with the industry said some 300 to 500 firms were eligible, but the sector's lack of awareness was to blame for the lacklustre response.

"Having no in-house tax expertise, we were unaware of the tax benefits offered under the sandbox registration," said Kishwar Hashemee, co-founder and CEO of an embedded finance startup Mitro which was eligible for registration.

"The case is similar for most of our peer startups," he said.

Now, startups that missed the opportunity are seeking an extension of the deadline, which was 30 June.

Startups that register with the sandbox scheme will enjoy lenient tax rules and regulations, but first, they have to register their companies as startups with the National Board of Revenue (NBR).

The Finance Act 2023 offered the opportunity for sandbox registration with the NBR and avail the benefits offered. The NBR needs firms to be engaged in innovation, development, distribution or commercialisation of new products, processes or services operated through technology or intellectual property to be treated as startups.

Industry experts said registering with the sandbox would significantly minimise tax bills, as it would help cut the minimum tax on turnover by one-sixth.

The minimum tax on turnover for a sandbox-registered startup will drop to 0.1% from 0.6%.

Moreover, the sandbox lets startups carry forward their losses for 9 years, which is only 6 years for other firms. This helps because the longer losses are allowed to be carried forward in tax returns, the more ease firms enjoy.

What is a startup sandbox?

The government's startup sandbox is a form of regulatory sandbox that allows eligible startups to use their full potential smoothly with reduced tax rates and an allowance to carry forward losses.

Such a sandbox also provides the regulator with insight into the types of innovation being explored by entrepreneurs, and the ability to provide guidance to them at an early stage.

According to the NBR, Chamak Solutions, Delivery Tiger, Instasure, Get-Aid, Fabric Lagbe, Med Easy, Med Box, Pulse Tech, Cyber Aeronautycs, Grit Technologies, Sasthya Seba, Dhaka Cast, Parents Care, Sokrio Technologies, Drip Irrigation, and Biomafy Ltd were the startups that applied for the benefits offered in the sandbox.

Chartered Accountant Snehasish Barua, a director at SMAC Advisory Services Ltd, told TBS that the tax benefits offered were not so small that one would ignore them.

According to Snehasish, startup companies incorporated after 30 June 2017, that were not part of any amalgamation or demerger scheme, and had an annual turnover of less than Tk100 crore, could have applied for the sandbox registration by 30 June this year.

Startups incorporated after 30 June 2023 will have to apply by 30 June of the next fiscal year following their incorporation.

Sandbox-registered startups incorporated between 1 July 2017 and 30 June 2023 will receive tax benefits for three years until 30 June 2027.

The younger ones, incorporated after 30 June 2023, will get the tax benefits for five years from the end of their incorporation.

"It is unfortunate that a lack of awareness left almost 500 eligible firms unrecognised at the tax office," said AKM Fahim Mashroor, a tech entrepreneur who founded the country's leading job portal BDjobs, e-commerce platform AjkerDeal and logistics startup Delivery Tiger.

"Among many young startup entrepreneurs, there is a misconception that their loss-making firms will not have to pay income taxes. This is because they are unaware of the minimum tax applicable for all firms," observes Mashroor, who is also a former president of Bangladesh Association of Software and Information Services.

"During their maximum efforts to build a technology-enabled business at the early stage, many of them try to avoid the hassle of tax, waiting for the time when it has to be addressed," he added.

"Tax compliance costs are high for young startups that mainly keep innovating despite a risk of failure," said Mitro's Hashemee, adding that tax-compliance should be made easier for them.

Like Hashemee, Rajib Das, founder of logistics startup Loop Freight said, "We want and need another opportunity to register under the sandbox."