Uncertain fiscal policy deters foreign investment: Businesses

The country's business leaders have expressed concern over fiscal policy uncertainty, which they said is harming both local business and foreign investment.

"When a foreign company asks about the tax rate in Bangladesh, we can't give them a clear answer. We tell them we will know in June, when the government announces the national budget," said Debabrata Roy Chowdhury, director of Nestle Bangladesh Limited, during a budget discussion at a hotel in Gulshan today.

The event, titled "National Budget 2024-25: Priorities for High-Potential Sectors," was organised by Policy Exchange Bangladesh (PEB) and hosted by its chairman, M Masrur Reaz.

Debabrata Roy Chowdhury noted that companies might declare dividends, but after that the budget announcement can impact them due to the retrospective effect of tax policies.

"This kind of system [retrospective effect] is not currently seen anywhere else in the world," he said.

Other business leaders and experts also voiced their dissatisfaction with Bangladesh's fiscal policy uncertainty.

Syed Mohammad Kamal, country manager of Mastercard Bangladesh, said they become anxious three to four months before the budget announcement.

He said such uncertainty is detrimental to business and called for a clear roadmap for tax rates in upcoming years. 

Kamal, a former vice president of the American Chamber of Commerce in Bangladesh (AmCham), shared a similar view, saying that "There should be a roadmap for tax rates in the future."

Wahidur Rahman Sharif, an information technology entrepreneur and president of the Bangladesh Association of Contact Center and Outsourcing, noted, "We don't know what the revenue board will do in the next budget. Will the tax rate allow us to maintain profitability, and what will be the pricing?" 

He said there should be a long-term tax plan for the IT-enabled services (ITES) sector.

Corporate tax

The discussants mentioned that the official corporate tax rate for non-listed companies in Bangladesh is 27.5%, but due to various disallowances and double taxation, the effective tax rate can reach up to 50%. Furthermore, high value-added tax (VAT) rates and import taxes put additional pressure on business.

Shubhasish Bose, chief executive officer of the Institute of Chartered Accountants of Bangladesh (ICAB), noted that foreign investors have concerns about the stability of tax rates over a longer period. 

"Sometimes, the duty rate increases even after machinery has been shipped for import, which increases business costs," he said.

Shams Mahmud, managing director of Shasha Denims Limited, one of Bangladesh's largest ready-made garment manufacturers, pointed out that a devaluation of about 40% in currency has eroded capital by the same rate. 

He called for a long-term policy that accounts for these factors. 

He mentioned that suggestions from the International Monetary Fund (IMF) to withdraw tax exemptions might harm industries if implemented too quickly.

A well-planned transition is a must if tax exemptions are to be phased out, he added. 

PEB's M Masrur Reaz said a sweeping withdrawal of tax exemptions could have negative consequences. He called for a clear roadmap instead. 

FH Ansary, managing director of ACI Agribusiness and Machinery Division; Waqar Chawdhury, former vice president of the Dhaka Chamber of Commerce and Industry; Snehasish Barua, managing partner of Snehasish Mahmud and Company; and Zakir Hossain, associate editor of The Daily Samakal; also spoke at the event.