Shifting tax regime barring investment: Business leaders

Business leaders have attributed the failure to achieve expected foreign direct investment to the inconsistent policies of various government institutions, including the National Board of Revenue (NBR).

They also criticised the complex tax system, absence of automation, high taxes and tariffs, limited flexibility in tax adjustments, heavy reliance on import taxes, and the lack of a business-friendly environment as major obstacles to business and investment.

Policymakers also acknowledged the issues at a pre-budget meeting organised by the Dhaka Chamber of Commerce and Industry at a capital hotel on Sunday (10 March).

Finance Minister Abul Hassan Mahmood Ali, present at the event "Pre-Budget Discussion 2024-25: Expectations of Private Sectors," said the next budget will be encouraging for the private sector. 

Mentioning that the private sector is playing a key role in the development of the country, the minister said the government is firmly committed to facilitating the private sector so that they can do their businesses in a hassle-free manner.

Infographic: TBS

Mahmood Ali also said that the government will positively consider necessary policy reforms in the next budget. 

Sayeed Ahmed Khan, head of Taxation, Unilever Bangladesh, said whether it is local or foreign investment, investors prioritise stability, ease of doing business, consistent policies, and effective tax rate.

The policy of the Bangladesh Investment Development Authority (Bida) and the tax policy of the revenue board NBR are not similar, he said. 

For example, he said the allowed amount of expenses for companies does not match between the two organisations. 

"Besides, the amount of expenditure which is allowed in one section of the law, is not being allowed in another section," he added.

Md Abul Kalam Azad, former principal secretary to the prime minister, also opined that foreign investment is not increasing due to policy inconsistency. 

He said that despite efforts such as establishing economic zones and offering discounts, foreign investment remains stagnant due to the absence of a consistent tax policy. 

Foreign investors want clarity on tax policies before making investments, as they typically plan for three to five years. He also noted that while local investors are accustomed to uncertainty, foreign investors are more cautious.

Business leaders and economists at the event also raised the issue of effective tax. 

Despite corporate tax rate reductions in the past three years, companies struggle to maximise benefits due to minimum tax requirements and restricted expense deductions. 

The current tax rate for non-listed companies is 27.5%, yet the effective rate often surpasses 40%, as cited by both local and foreign investors. 

Business leaders also voiced concerns over high import taxes on certain raw materials, with a Policy Research Institute study highlighting that Bangladesh's average import duty is higher than that of other Least Developed Countries.

The discussions were divided into four important sessions: Tax and VAT, Financial Sector, Infrastructure sector and Industry & Trade sector.

DCCI President Ashraf Ahmed moderated and chaired the discussion.

'Easier tax process not easy'

Abu Hena Md Rahmatul Muneem, chairman of the NBR, said simplifying the tax payment process sounds simple but implementing it is challenging because revenue generation must also be considered.

Despite this, corporate taxes have been reduced to 7.5% over the past three years, and individual taxes have decreased from 30% to 25%, he mentioned.

Munim highlighted NBR's support for the local industry, aiming to promote the "Made in Bangladesh" concept and reduce import dependency by encouraging the production of used goods locally. 

"I am looking for support to encourage middle class consumers to manufacture used goods locally, so as to reduce import dependency. As a result, some electronics products are now being supplied by 95% local companies," he added. 

Munim acknowledged the difficulty in finding new taxpayers, as many prefer not to pay taxes. However, he aims to quickly improve the tax-to-GDP ratio.

Concern over bank merger

At the discussion, business leaders and economists cautioned against forced mergers between weaker and stronger banks. 

Aftab ul Islam, former president of the American Chamber of Commerce in Bangladesh, expressed concerns about the uncertainty surrounding bank mergers, particularly regarding potential issues arising from merging with weaker banks. 

Aynul Islam, general secretary of the Bangladesh Economic Association, also said there is panic regarding the mergers. 

"Mergers should be done gradually without haste and before that a bank commission should be constituted and decisions should be taken based on its recommendations," he added. 

Disclose list of willful defaulters

AK Azad, former president of the Federation of Bangladesh Chambers of Commerce and Industries (FBCCI), called for the disclosure of names of deliberate loan defaulters and individuals who have transferred funds abroad instead of investing in their businesses. 

He said publicising their names would subject them to social pressure, compelling them to repay their debts. 

Addressing the finance minister, Azad said, "Banks are saying the dollar is Tk109, but we are buying it at Tk124. The NBR is collecting tax on our imported goods at Tk124."

He criticised the blame placed on businessmen for this situation.