As boosting foreign investment is on the priority agenda of the government, economists and trade bodies have suggested lowering corporate tax rate, promotional expenses and technical fees in the coming budget for fiscal 2021-22 (FY22), to attract foreign investments into the country.
Before making any investment decision, foreign companies consider a number of issues such as corporate tax rate, profit ratio, security and promotional expenses, they said, adding that if the government takes some positive steps, there is a high possibility of boosting foreign investment in the country during FY22.
Foreign Investors' Chamber of Commerce and Industry (FICCI), Metropolitan Chamber of Commerce and Industry (MCCI) and Dhaka Chamber of Commerce and Industry (DCCI) suggested slashing of corporate tax in the budget for FY22, saying that it would help attract foreign investment in the country.
"It is encouraging that the government is gradually reducing corporate tax. But the government needs to amend a number of provisions of the Income Tax Act, including setting a 0.5 percent limit on the company's promotional expenses and lowering the spending limit on royalties and technical fees to boost foreign investments," said FICCI president Rupali Chowdhury.
"It is becoming difficult to do business in Bangladesh as expenditure on operations and taxes is much higher in Bangladesh than that in India," said Rupali.
Referring to a set of proposals that FICCI placed during a pre-budget meeting with the National Board of Revenue (NBR), Rupali Chowdhury suggested reducing the corporate tax rate to regular taxpayers like foreign companies citing their compliance.
"Tax rate for non-listed companies had been reduced from 35 percent to 33 percent in fiscal year 2020-21. It should be reduced by 2 percent for listed companies in the next budget (FY22)," she added.
At present, corporate tax ranging from 25 percent to 45 percent is levied from companies under eight categories, the FICCI president said, claiming that corporate tax rate in Bangladesh is higher than that in the competing countries.
The corporate tax rate is 30 percent in India, 26 percent in Sri Lanka, 20 percent in Afghanistan and 20 percent in Vietnam, she said, adding that Myanmar and Indonesia have 25 percent each while Malaysia and Singapore have 24 percent and 18 percent corporate tax respectively.
"Such high corporate tax simply discourages foreign companies to invest in Bangladesh," said Rupali to Bangladesh Post.
In the budget for FY21, up to 0.5 percent of total turnover was kept tax-free for the company's promotional expenses. The NBR adds the same provisions to royalty and technical expenses.
Rupali Chowdhury proposed increasing the limit, mentioning that companies in the manufacturing sector have to spend a lot on market research and promotion.
In addition, the foreign companies should allow importing capital equipment through any port of the country.
Echoing the same views, MCCI president Nihad Kabir said it is a very positive step that the government reduced the corporate income tax rate to 32.5 percent from 35 per cent in the fiscal year 2020-2021. It would be more encouraging if NBR takes steps to rationalize the corporate tax in the coming budget for FY22, she added.
"NBR should take steps to gradually bring down the corporate tax rates as part of the preparations to graduate from the Least Developed Country (LDC) status by 2026," she said.
The MCCI president said the advance income tax on import, supply chain and services should be reduced to encourage local and foreign investment in the country.
The MCCI chief also said that no limit should be imposed on promotional expenses as it hurts the fast moving consumer goods (FMCG) companies.
Dhaka Chamber of Commerce and Industry (DCCI) President Rizwan Rahman suggested gradually reducing the corporate tax rates, starting from the next fiscal year (FY) to encourage foreign companies to invest in Bangladesh.
As per the plan, he sought a 2.5 percent cut in FY2021-22, followed by 5.0 percent in FY 2022-23 and 7.5 percent in FY2023-24.
"The downsizing of the corporate tax rate is necessary to boost local and foreign investments," said the DCCI president.
Talking to Bangladesh Post, renowned economist Dr. Atiur Rahman said "overall tax structure, including the corporate tax rate, needs to be restructured to encourage local and foreign entrepreneurs to invest in Bangladesh."
"A favourable investment environment is prevailing in the country. We have cheap and skilled manpower . . . there is political stability also. What we need now is to launch a campaign to attract foreign entrepreneurs to invest here," said Atiur, former governor of the Bangladesh Bank.
Executive director of Policy Research Institute (PRI) Dr Ahsan H Mansur said, "slashing corporate tax rate and reshaping the tariff policy are needed to attract foreign investment in Bangladesh."
"Bangladesh is far behind its major competitors like Vietnam, Cambodia and Malaysia in terms of doing business, competitiveness and logistics indexes," he also said.
Dr Ahsan suggested making the trade policy investment-friendly and improving the overall investment environment to attract foreign investment.