NBR mulls ending tax breaks for physical infrastructures

Highlights

• Investors in over 15 types of infrastructures currently enjoy tax benefits
• Benefits may continue for 2-3 projects in renewables, ports, and LNG terminals
• Tax authorities don't know total spending on tax expenditure over the years
•  Certain physical infrastructures currently get tax benefits for a period of 10 years

The National Board of Revenue (NBR) is considering the withdrawal of income tax exemptions and holiday benefits for investors of some physical infrastructures from the upcoming fiscal year as part of its efforts to reduce tax expenditure.

Currently, investors in over 15 types of infrastructures benefit from full or partial income tax exemptions provided under the Income Tax Act.

These include projects such as deep-sea and river ports, elevated expressways, export processing zones, gas pipelines, ICT parks and villages, hi-tech parks, toll roads and bridges, mobile towers, water and waste treatment plants, and rapid transit systems.

If implemented in line with the International Monetary Fund's (IMF) recommendations, investors in such projects will have to pay the standard tax rate on infrastructure income, currently 27.50% for companies, starting from FY25.

"We plan to not extend any tax exemption or tax holiday facility for physical infrastructure projects," a senior official of the National Board of Revenue (NBR) closely involved in the preparation of fiscal policy, asking for anonymity, told The Business Standard.

He said the NBR has already received a green signal from the government high-ups on this matter and has been working accordingly. "We hope to include a proposal in the upcoming budget."

He also mentioned that similar tax benefits for other categories may end in the years following the next fiscal year.

Meanwhile, sources said the revenue board is reviewing all tax exemptions. Following the repeal of tax exemption-related orders, the NBR will establish guidelines to gradually phase out the exemption process.

They said the government has been providing these tax exemption facilities for over 20 years to encourage investment in Bangladesh. However, the tax authorities have not calculated the total spending in these sectors during this time.

They mentioned that investments in two to three projects – renewable energy, sea or river ports, LNG terminals – may continue receiving tax breaks for a few more years.

Opposing the plan, Shaikh Yusuf Harun, executive chairman of the Bangladesh Economic Zone Authority, told TBS that investors expect some benefits. "Otherwise, why would anyone, local or foreign, invest here?"

He suggested that benefits to investors can come in other forms or at a lower rate.

A senior officer of the NBR told TBS that imposing the standard tax rate on physical infrastructure could further increase project implementation costs.

He, however, was of the view that despite the potential increase in project costs, the government could offset it by collecting taxes, which would help promote a compliance tax culture and generate revenue for the government.

Experts, however, welcomed the NBR's move, stating that such facilities should not be available for an indefinite period.

M Masrur Reaz, chairman of Policy Exchange Bangladesh, told TBS that tax exemption or holiday facilities should not be available for a long time. Investors, regardless of who they are, should be taxed at the standard rate once they earn from Bangladesh.

Tax holiday refers to a gradual increase in the tax rate from zero. Currently, selected physical infrastructure projects receive reduced tax benefits for a period of 10 years.

According to the Income Tax Act, they receive 90% tax exemption on income for the first two years of operation, 75% for the third and fourth years, 50% for the fifth to seventh years, and 25% for the remaining three years.