Investors call for stable tax policy for special economic zones

Business representatives, researchers, and investment promotion groups have proposed policy consistency, uniform tax holidays for special economic zones, and a standardised VAT rate to boost and retain investment – a key economic driver.  

They presented the proposals at a pre-budget discussion organised by the National Board of Revenue (NBR) at its headquarters in the capital yesterday.  

Representatives from the Business Initiative Leading Development (BUILD), Bangladesh Economic Zones Authority (Beza), Bangladesh Export Processing Zones Authority (Bepza), Bangladesh Hi-Tech Park Authority,

Women Entrepreneurs Network for Development Association, and American Chamber of Commerce in Bangladesh (AmCham) shared their perspectives at the meeting.

Beza Deputy Secretary Muhammad Imtiaz Hasan highlighted that businessmen have repeatedly urged authorities to maintain tax policy consistency. 

"We attract foreign investors with promises of certain facilities, but once they establish companies in Bangladesh, they are discouraged from further investment," he stated.  

He explained that investors take decisions based on previously issued SROs related to income tax, VAT, and customs duty. However, when these SROs are revised after 8-10 years, it discourages investors. To build confidence, he emphasised the need for tax policy continuity.  

NBR Chairman Abdur Rahman Khan assured stakeholders of policy continuity, emphasising that no measures would be introduced to hinder investment.  

In response to a journalist's question, he said, "We will establish a long-term tax policy to attract foreign investment and support local investors in conducting business smoothly."  

"We will identify tax evaders, ensure due taxes are collected for the national treasury, expand the tax net, and work towards digitising all NBR operations," he added.  

Bepza Executive Director (Investment Promotion) Md Tanvir Hossain proposed uniform tax holiday benefits for investors in Special Economic Zones. 

He noted that varying tax holiday benefits provided by different agencies create challenges in attracting investment, leading to unfair competition and hindering balanced investment. 

He suggested implementing uniform benefits and incentives for all industrial establishments under Beza, Bepza, Bida, and the Bangladesh Hi-Tech Park Authority.  

Additionally, Beza proposed special tax holidays for non-conventional product production and recommended amending laws to restore bond facilities for warehouses in economic zones within the Export Processing Zone.  

BUILD has proposed a flat 10% VAT rate to improve government revenue collection.  

Currently, alongside the universal 15% VAT, there are seven other rates. BUILD CEO Ferdaus Ara Begum said Section 46(1) of the VAT law does not allow VAT credits or rebates for rates below 15%, resulting in an effective VAT burden of approximately 30% due to the cascading effect.  

She also pointed out that 53% of economic activities fall outside the VAT system, while the remaining 47% are subject to varying rates across three levels, making the rebate system largely ineffective.  

At the meeting, the NBR chairman said while the government also supports a single VAT rate, the exact percentage is still under discussion.  

He mentioned that efforts are underway to introduce a uniform rate in this budget or, if not, in the next one.  

AmCham emphasised tax reforms and business-friendly policies.  

The AmCham delegation was led by Syed Mohammad Kamal, country manager of MasterCard and a member of AmCham's Research and Policy Advocacy Subcommittee.  

Reza-Ur-Rahman Mahmud, managing director of Philip Morris Bangladesh, presented the details of the proposal.  

AmCham urged the withdrawal of the NBR's No Objection Certificate requirement and sought clarification on the scope of tax waivers.  

Additionally, it proposed adjustments to withholding tax rates under Rule 5 of the WHT Rules 2023, to ensure fair deductions for contractors and subcontractors.  

Persio Morassutti, global CFO at Recover, highlighted the need to remove VAT on recycled cotton, treating it similarly to virgin cotton. This adjustment would foster sustainability, support the eco-friendly textile sector, and encourage adopting circular economy practices within the industry.  

The Wend has proposed increasing the tax-free income limit for women from Tk4 lakh to Tk5 lakh.  

NBR Chairman Khan said, "Our policy is to gradually eliminate the culture of tax evasion. We will raise tax rates for those paying at lower rates and gradually reduce exemptions for the tax-exempt."  

"Additionally, we will rationalise operational levels, particularly advance income tax and turnover tax, which are challenging businesses. This will be our primary focus," he added.