Stability may trump tax incentives in Bangladesh
ON-THE-GROUND
Our incentives have always been investment-friendly but unless you have political stability, investment will not increase. – Fahmida Khatun, Center for Policy Dialogue
FULL BRIEFING
The Bangladeshi government’s new budget includes incentives for investors but is unlikely to achieve its goals for gross domestic product growth.
Bangladesh’s $32 billion budget for the 2014-15 financial year starting in July includes an extension of the expiring tax holiday for new entrepreneurs through 2019 and tax rebates for industries setting up in least-developed areas. Foreign investors would meanwhile enjoy a corporate tax reduction from 37.5 percent to 35 percent.
Economists however say the government’s GDP growth target of 7.3 percent is too ambitious, in part because it would depend on significant new investment in the economy at a time when Bangladesh has been facing political turmoil.
“Our incentives have always been investment-friendly, but unless you have political stability, investment will not increase,” Fahmida Khatun, head of research at the Center for Policy Dialogue in Dhaka, tells Monitor Global Outlook.
The budget also includes provisions affecting the garment industry, which earns 80 percent of the country’s export revenue. To encourage safety compliance in the sector, the government is offering a full duty exemption on the import of prefabricated building and safety materials. In addition, the government is reducing the tax deducted at source of export from 0.8 percent to 0.3 percent, an effort to boost the trade volume.
Still, the cost of shipment and transportation will increase under the budget. The government is proposing a value added tax of $32.20 per hundred metric tons for ocean-going cargo and passenger vessel and a hike in tariff values for crude petroleum oil per barrel from $32 to $40.
The government is projecting $35 billion in exports in the new financial year. This year’s export total stands at $30.5bn through April. The country’s imports of goods and services reached $40bn as of March 2014.