Japanese ambassador seeks equal incentives for foreign cos at EPZs

To eliminate the disparity in domestic and foreign investments, the Japanese Ambassador to Bangladesh Ito Naoki has proposed extending the existing cash incentive benefits on ready-made garment (RMG) exports to 100% foreign and joint investment companies listed under the export processing zones (EPZs).

Currently, only the domestic RMG companies get cash incentives for exporting products to new markets.

In a letter to Finance Secretary Fatima Yasmin on 11 August, the Japanese envoy said extending the facility to all will increase Bangladeshi exports to Japan as well as Japanese investments in Bangladesh.

Also, the Japanese companies investing in Bangladesh will be able to hire more workers, increase the wages of workers and increase the expenditure on skills development, he said in the letter.

For this reason, the Japanese ambassador recommended reducing the existing 5% cash incentive against RMG exports to 2% and providing it to all types of domestic and foreign exporters so that the cost of the government does not increase.

At present, there are three types of companies in EPZs: 100% foreign-owned companies in the A category, domestic-foreign joint companies in the B category and 100% domestic-owned companies in the C category.

The 4% cash incentives given by the government against RMG exports to new markets are availed by local companies outside EPZ, as well as only the C category companies within the EPZ. The A and B category companies do not get it.

Besides, the government gives a 1% incentive on the export of manufactured apparel products to any country, which earlier A and B category companies did not get.

To tackle the pandemic-induced situation, the stimulus package announced by the government to provide working capital at low interest was initially not available to A and B category companies.

In a meeting with Principal Secretary of the Prime Minister's Office (PMO) Ahmad Kaikaus, Japanese investors proposed to solve these inequalities, and the government accepted it. All types of companies, including the ones listed in EPZs, are now benefiting from the Covid incentive and 1% cash incentive on RMG exports.

According to Bangladesh Export Processing Zone Authority (Bepza) data, there were 359 'A' category companies, 100 'B' category companies and 216 'C' category companies in the country's EPZs till the fiscal year 2020-21.

According to Bepza's Annual Report for FY2019-20, the total export volume from 8 EPZs in Bangladesh in that year was about $7.5 billion, and in FY2020-21 it was about $6.49 billion.

The total investment in EPZs in Bangladesh till 2020 was more than 5.2 billion, according to Bepza.

In the letter, Ito Naoki said, "I appreciate the government's recent decision that the 1% cash incentive of the export value for garment exports is given to all types of companies across the board."

"However, the discrimination between domestic and foreign companies still remains. Only 'C' category companies are eligible for the additional 4% cash incentive," he noted.

"If the 4% cash incentive will also be granted to 'A' and 'B' category companies, exports to new markets including Japan will definitely grow and Japanese companies will be further encouraged to expand their investment in Bangladesh. I believe that should be the intention of the policy," said Naoki.

The Japanese ambassador also discussed the matter with the former finance secretary and Bangladesh Bank governor Abdur Rouf Talukder.

At that time, Abdur Rouf Talukdar told Ito Naoki that Bangladesh will graduate from the least developed country (LDC) status in 2026 and it will not be possible to give such incentive then.

Based on that discussion, Naoki wrote to Fatima Yasmin, "I would like to take this opportunity to propose that, if the cash incentive is to be reduced in stages, the government would be able to set the cash incentive at 2% for all type companies to make it non-discriminatory between domestic and foreign companies."

"The measures mean to reduce the cash incentive for 'C' category companies from 5% to 2%, and temporarily increase it for 'A' and 'B' category companies to 2%, and Japanese companies can make use of the 2% incentive for their further recruitment, wage increase, and skills development," the ambassador said.

"Resolving this issue is crucial to improve the investment climate in Bangladesh and to encourage more foreign companies, particularly Japanese companies, to come into Bangladesh," Naoki pointed out.

"It is unexpected to have this kind of discrimination between domestic and foreign investors in giving cash incentives," Former president of the Federation of Bangladesh Chambers of Commerce and Industries (FBCCI) Shafiul Islam Mohiuddin told The Business Standard, emphasising uniform benefits for all types of investors.