VAT on software: Will it impact the vision of Smart Bangladesh 2041?
The country's information technology sector will serve as the main raw material for building a smart Bangladesh. The more the government supports this sector at the policy level, the faster the dream of Smart Bangladesh will be fulfilled
Since the Honourable Prime Minister declared the vision of Digital Bangladesh on 12 December 2008, the government has been offering a variety of facilities for developing this industry. The expansion of this industry over the past ten years is simply understandable to anyone.
Last year, when the Honourable Prime Minister announced the concept of Smart Bangladesh by 2041 from Digital Bangladesh, everyone was eagerly waiting to see how much of it would be reflected in this fiscal year's budget.
The word "Smart Bangladesh" has also been incorporated in the title of this year's budget, and the finance minister included a roadmap and detailed measures for numerous government initiatives in his speech.
An allocation of Tk2,368 crore has been proposed for the ICT department in the budget for the financial year 2023–24, which is about Tk526 crore more than the last financial year. The highest priority should be given to the expenditure of this money to the development of ICT human resources, the development and enhancement of E-Governance software and increasing exports from the ICT industry.
Keep updated, follow The Business Standard's Google news channel
Everyone knows that human resources is the only raw material in the ICT sector. But the unfortunate factor is that the ICT training sector has to pay 25% tax (VAT), which will most likely hinder the creation of skilled human resources in this sector. The target of 50 billion dollars of income from the information technology sector by 2041 will be threatened if suitable human resources for this sector are not created now.
The VAT exemption on the manufacturing of computers and internet products, including laptops, in the country is extended until 2026, which will undoubtedly play a role in the development of the hardware industry in the country. This VAT exemption facility is given on 43 products, including printers, toner, toner cartridges, injector cartridges, computer printer parts, computers, laptops, AIOs, desktops, notebooks, notepads and tabs, which is undoubtedly worthy of appreciation. At the same time, VAT has been exempted on locally produced optical fibres too.
But the widely expected extension of tax exemption in the software sector until 2030 has not been fulfilled. Note that there is currently a tax exemption until 2024. As building Smart Bangladesh is now one of the biggest agendas of the government, it is important to increase domestic and foreign investment in this sector and increase long-term tax incentives to attract new investments.
The VAT increase in the software industry from 0% to 5% at the manufacturing stage will unquestionably hinder domestic software development. It should be recalled that last year, the VAT rate for software services and maintenance was raised from 5% to 15%. It needs to be mentioned here that although there are separate VAT rates for software production and maintenance, VAT is being deducted at the rate of 15% in most government institutions, so it is important to have a specific Statutory Regulatory Order (SRO) in this regard.
It should be noted that big data, blockchain, robotics, and artificial intelligence are not yet included in the definition of ITES. However, these technologies will be the tools of the future on the way to building a smart Bangladesh. These sub-sectors must soon be included in the definition of ITES.
The budget mentions the protection of the local software sector, which certainly proves the government's sincerity towards this sector. Earlier, there was a 5% import duty on some types of software imports, but now it has been proposed to impose a 25% import duty along with a 15% tax on all types of software imports.
It is necessary to mention that for operating systems, databases and simulation software, i.e., the type of software that is not made in Bangladesh, there was a 5% import duty on that type of software earlier. As a result, the trend towards using pirated software will increase. Since no cyber security software has been developed in Bangladesh to date, this is another significant industry where prices will rise.
The inclusion of the ITES sector and the reduction of the high tax rate (currently 27.5%) on internet service providers have been long-standing demands. That, too, has not been fulfilled in this year's budget.
Finally, the country's information technology sector will serve as the main raw material for building a smart Bangladesh. The more the government supports this sector at the policy level, the faster the goal of Smart Bangladesh will be fulfilled. A speedy review of the shortfalls in this sector in the budget will indirectly benefit the government's vision for Smart Bangladesh.
Rashad Kabir is a director of Bangladesh Association of Software and Information Services (BASIS) and the managing director of Dream71 Bangladesh Ltd.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.
