At a roundtable discussion titled ‘Tech Start-up: Income Tax Policy Support’ held in the city on Wednesday, around 20 start-up businesses advocated for ongoing government support via tax incentives
Tech entrepreneurs in Bangladesh are expressing growing concerns about the future sustainability of their businesses as a crucial tax break for the Information Technology (IT) sector nears its expiration in June this year. The impending expiration has sparked fears among industry players about the potential ramifications on the country’s technological advancement and economic growth.
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Stakeholders argue that the government’s ambitious vision of establishing a ‘Smart Bangladesh’ could face significant setbacks if the software and technology sector experiences a downturn due to the discontinuation of tax incentives. The pivotal role played by the IT industry in driving innovation, creating employment opportunities, and attracting investments underscores the urgency of extending the tax break.
‘Smart Bangladesh’ Vision of Govt
The ‘Smart Bangladesh’ vision is a policy of the Government of Bangladesh to build a digitally enabled, smarter, and more sustainable country. It’s about more than a futuristic Bangladesh, more than 5G internet, more than 100% smartphone penetration, more than 100% high-speed internet penetration, more than going cashless. The vision is built on the 4 pillars of Smart Citizens, Smart Government, Smart Economy, and Smart Society. It aims to bridge the digital divide by innovating and scaling sustainable digital solutions that all citizens, regardless of their socio-economic background, all businesses, regardless of their size, can benefit from. The ultimate goal of Smart Bangladesh is to create a more prosperous, equitable, and sustainable future for the people of Bangladesh. It aims to leverage the power of technology to improve the quality of life for all citizens, create new economic opportunities, and drive sustainable development.
Entrepreneurs Urge for Policy Continuation
Under the current income tax law, the IT-enabled sector enjoys exemption from taxes until June 30, 2024. Entrepreneurs are advocating for an extension of this exemption until 2041, aligning it with the government’s overarching ‘Digital Bangladesh’ vision. They emphasize that the benefits derived from the tax break far outweigh any potential revenue losses, particularly in terms of job creation and investment inflow. On Wednesday, (24 April) a recent roundtable discussion titled ‘Tech Start-up: Income Tax Policy Support’ held in the city, around 20 start-up businesses voiced their plea for continued government support through tax incentives. The demand received backing from tax experts and leaders of the Bangladesh Association of Software and Information Services (BASIS), underscoring the industry-wide consensus on the issue. Entrepreneurs highlighted that neighboring countries offer similar tax incentives to attract investment in tech start-ups. They cautioned that withdrawal of tax exemptions in Bangladesh could result in the loss of significant investments, amounting to approximately $1 billion garnered over the past five years.
The experts suggested that since these businessmen are generating significant income, introducing a fixed tax rate by the government could enhance the country’s prosperity.
Challenge to Revenue Board’s Estimates
Fahim Masroor, former president of BASIS and moderator of a recent roundtable, has criticized the National Board of Revenue’s (NBR) estimated tax loss of Tk 14.70 billion attributed to the tax exemption for the IT-enabled services (IETS) sector, deeming it ‘unrealistic’. Masroor contests the NBR’s claim that tech companies are generating Tk 50 billion in annual profits, asserting a more realistic figure of around Tk 10 billion. This discrepancy would result in approximately Tk 3 billion in annual tax revenue, prompting Masroor to call for a comprehensive company-level survey to accurately assess the sector’s profitability. Shamim Ahsan, another former BASIS president, acknowledged the government’s recent policy support for the tech sector but cautioned against prematurely eliminating tax benefits. He argued that the immediate termination of tax exemptions could lead to lower additional revenue compared to the tax losses over the next five to ten years, potentially driving entrepreneurs to seek investment opportunities abroad and impacting local job creation.
Tech Industry Leaders Challenge Revenue Board’s Tax Estimates
Zuberi Himika, senior vice president of BASIS, proposed a collaborative effort between the government and local tech entrepreneurs to develop automated and simplified tax collection systems, aiming to streamline revenue collection processes and enhance compliance within the sector. The roundtable also featured insights from Shawkat Hossain, director of the Venture Capital Association, and Sayeed Ahamed, chief of the Institute of Informatics and Development (IID), while tax expert Snehasish Barua delivered the keynote paper, contributing to a comprehensive discussion on the implications of tax policies on the tech industry in Bangladesh.
Current Tax Collection Scenario
The government’s revenue authority faces a daunting challenge as it strives to collect Tk 1.50 trillion in the final quarter of the current fiscal year to meet even its revised target, as revealed by recent tax receipts showing shortfalls. A recent analysis suggests that revenue officials may encounter significant hurdles in gathering an average of Tk 500 billion per month in April, May, and June from the existing tax base. As of March 2024, the National Board of Revenue (NBR) had only managed to achieve 63.36% of its revised annual target. Despite efforts, the tax-revenue collection from July to March amounted to Tk 2.59 trillion, leaving a deficit of Tk 219.30 billion against the pared-down annual target of Tk 4.10 trillion for the 2023-24 fiscal year. Typically, the revenue board garners around Tk 300 billion in taxes each month. However, a substantial portion of revenue is usually realized in the last month of the fiscal year, buoyed by the implementation of government development projects and intensified tax collection efforts. Last year, the NBR had set a tax-collection target of Tk 3.70 trillion, with an average growth rate of 10.64% in the third quarter. Comparatively, revenue collection growth was 8.30% in the same period of the previous year. March 2024 marked a notable exception, with the NBR collecting Tk 332.79 billion in taxes, reflecting a 13% growth compared to the corresponding period of the previous year. However, this collection still fell short of the target by approximately Tk 33.68 billion.
Conclusion
In conclusion, the expiration of tax breaks for the IT sector in Bangladesh presents a critical juncture requiring careful consideration by policymakers. Balancing the need for revenue generation with sustaining the momentum of tech entrepreneurship is crucial for realizing the country’s digital aspirations and fostering economic growth.
