The golden goose and the taxman
A golden goose had once started laying solid gold eggs in the whimsical land of Bangladesh. But alas, the taxman slapped a tax on it that turned its feathers grey. The ministers mourned, startups collapsed, and the goose migrated to a tax-free haven.
When you find a golden goose, cherish it without jeopardising its worth to avoid a scrambled situation. Recently, our minister for road transport and bridges expressed his grievance for being in the dark over the imposition of VAT (value-added tax) on metro-rail tickets.
The story came into my mind when I read the news that the NBR (National Board of Revenue) is considering withdrawing tax benefits to collect more revenue. The NBR's rationale is clear as the tax-to-GDP ratio in Bangladesh is one of the lowest in the world, with India, Pakistan, and Sri Lanka having ratios well above 15 percent. From the angle of the NBR, there is a clear problem with tax collections.
Over the past three decades, my engagement with NBR officials has revealed a recurring pattern: the target is to increase revenue collection by 20-25 percent annually. Unfortunately, this short-term focus on revenue collection becomes a hindrance to economic growth, as we miss out on many golden geese along the way and fail to reach a double-digit tax-to-GDP ratio.
Notably, during the nation's pursuit of a Digital Bangladesh, the NBR imposed hefty taxes on mobile network operators and other ICT services, resulting in our country being the worst performer in South Asia across several key digital parameters.
Bangladesh Hi-Tech Park Authority, a government agency, has invested heavily in setting up 28 hi-tech, software technology parks or IT training and incubation centres across the country in accordance with the government's long-term goal.
While we are yet to see any significant utilisation of these facilities (except for a few parks), such massive infrastructure would, in the long run, pave the way for us to be a leading ICT exporting country. However, it would require large-scale and constant investment and policy-level support.
India exported $193 billion of IT products in 2022-23. Hence, assuming our export potential is one-tenth of India's, we should be exporting around $20 billion. While Bangladesh's export revenue is approximately $548 million, Pakistan's exports are expected to surpass the $3-billion mark in 2024, and Sri Lanka faring above $1 billion.
Removing tax benefits from our ICT industry would have several adverse consequences, as it is a key to realise the vision of a Smart Bangladesh by 2041. The government has invested immensely in this regard. Now it needs to attract foreign direct investment that contributed significantly to the economy.
Tax incentives would encourage investment in digital infrastructure, innovation, and human resources. I am not sure if the NBR intelligence has worked out the assets impairment of ICT investment versus the revenue that it would collect from the industry.
It is also important to note that despite directives from Bangladesh Bank, our banking industry extends the least support to IT companies and startups, as they mostly deal with platforms and services, which serve little as tangible assets that banks need for collateral. As per Bangladesh Bank directives, banks are to invest 1 percent of their operating profits in this cause. Unfortunately, they are unable to invest even a tiny fraction of the said 1 percent.
Maintaining tax benefits for the ICT industry is crucial for sustaining economic growth, fostering digital transformation, creating jobs, and enhancing Bangladesh's global competitiveness. The solution is to strike a balance between revenue collection and supporting a thriving industry, which is key to the nation's progress.
The author is founder and managing director of BuildCon Consultancies Ltd.