All classes of producers and exporters of agro products based in the EZs and EPZs will get 20% cash incentives from the next fiscal year. The incentive will be on exports of agro-based products manufactured by 100% locally owned, foreign owned and joint venture enterprises in the country's economic zones (EZs) and export processing zones (EPZs).
The decision was taken at a recent meeting of the governing board of the Bangladesh Economic Zone Authority (Beza) chaired by Prime Minister Sheikh Hasina.
At the meeting, the prime minister also directed the authorities concerned to make detailed recommendations on what other benefits Bangladesh can offer to investors to attract foreign investment. She wanted the recommendations within a month.
In this context, the National Board of Revenue (NBR) has formed a committee to make a set of recommendations after reviewing various tax rates and incentives, including corporate taxes in India, Vietnam, Thailand and Indonesia.
The government has been providing 20% cash incentive against exports of agro products by industries outside the EZs and EPZs.
However, 100% foreign-owned (A-class) and joint-venture (B-class) export-oriented enterprises in the EZs and EPZs do not get any such incentive. Only 100% locally owned (C-class) companies in the EZs and EPZs get cash incentives at a rate of 4% on condition of 30% value addition.
Paban Chowdhury, executive chairman of the Beza, told the meeting that entrepreneurs from several countries, including Japan, have expressed their interest in investing in the agro-processing industry in different economic zones of Bangladesh but they are yet to make the move because of the discriminatory incentive system.
In response, the prime minister said there was no need to wait for the governing board meeting to report inequality in terms of cash incentives on the exports of agricultural products.
It should have been reported directly to the Prime Minister's Office (PMO) earlier, she said.
She also directed the finance secretary to take immediate steps to provide a 20% incentive to all types of companies against their exports of agro products.
Finance Secretary Abdur Rauf Talukder told the prime minister that all agro-processing industries set up in economic zones and export processing zones will be given incentives at the rate of 20% from the next financial year.
According to the Export Promotion Bureau, the country exported $862 million worth or agro products in the fiscal year 2019-20, which was 5% less than that of the previous fiscal's volume of $908 million.
Meanwhile, in the first quarter of the current fiscal year, export earnings from agricultural products increased by $9 million year-on-year. In the July-September period of this year, $271 million worth of agro products were exported, up from $262 million exported in the same period a year ago.
The United States, European Union and Middle Eastern countries are the main markets for Bangladesh's agricultural products. About 500 companies of the country including Square, Pran, ACI are involved in the export of agricultural products.
Shafiul Islam Mohiuddin, member of the task force formed by the commerce ministry to attract foreign investment, said it is quite logical that foreign entrepreneurs would lose interest if there is such discrimination between domestic and foreign investors in terms of getting government incentives.
Mohiuddin, also a former president of the Federation of Bangladesh Chambers of Commerce and Industries (FBCCI), told The Business Standard, this 20% cash incentive should have been given much earlier on exports of agricultural products to factories in the EZs and EPZs.
Kamruzzaman Kamal, director of Pran-RFL Group, told The Business Standard that if the cash incentives were applied equally to all, domestic, foreign and joint-venture companies in the EZs and EPZs would be interested in producing and exporting agricultural products. Foreign investment will also increase then, he added.
In this case, conditions can be added for the use of domestic raw materials including agricultural products produced in the country.
Beza officials said if the agro-processing companies in economic zones, which do not take non-bonded or duty drawback benefits, are given incentives at the rate of 20% against their exports, foreign investment will increase in economic zones established in economically backward areas.
This will facilitate exports of agricultural products and development of backward linkage industry, which will ensure fair prices of agricultural products at the farmer level and increase the quality of products because of the use of advanced foreign technology.
Agro products that will receive 20% incentive
The government provides 20% cash assistance on exports of 20 types of agricultural products produced in the country, except in economic zones and export processing zones.
These include all kinds of products made from potato, flattened rice, puffed rice; all kinds of confectionery products made of flour, chanachur, motor bhaja, dal bhaja, chira bhaja.
All kinds of nuts, spices, jams, jellies, pickles and sauces, vermicelli, macaroni and noodles; all kinds of fruits and vegetables and all products made from them, frozen mushrooms, paratha, snacks, bread, kalozira (nigella) and sesame oil are also in the list.
The list also includes ketchup, vinegar, cassava, chocolate, candy and lollipops.
PM seeks incentive recommendation to attract FDI
Prime Minister Sheikh Hasina has decided to give higher tax concessions and incentives compared to the competitor countries to attract the investors from Japan, European Union, United States, and other countries who are shifting from China amid the US-China trade war and the current Covid-19 situation. She also aims to attract new foreign investment by offering these facilities.
The prime minister instructed her Principal Secretary Ahmed Kaikaus to submit a set of recommendations to her within a month detailing what benefits Bangladesh can offer after reviewing the facilities offered by India, Vietnam, Thailand, and Indonesia.
Beza said there is a tough competition in wooing foreign investments and competitor countries try to attract investments by offering various benefits, including incentives.
Despite having cheap labour facilities, the inflow of foreign investments in Bangladesh is not as expected as in the competitor countries.
Although the government has moved eight notches up in the ease of doing business index on the back of various measures, Bangladesh is still lagging behind India, Thailand, Indonesia and Vietnam.
Paban Chowdhury, also member secretary to its governing body, said India has offered various benefits to foreign investors targeting investment shifts from different countries and the country has also identified special areas to become self-sufficient in pharmaceutical, electrical, electronics and chemical sectors and to overcome financial losses caused by Covid-19.
He said the corporate tax rate in India has been brought down to 22% from 30%. However, for new enterprises in the industrial sector, the rate is 17%. In addition, the corporate tax and value-added tax (VAT) rates in Thailand, Indonesia and Vietnam are lower than in Bangladesh.
Mentioning that whether there is unequal competition with foreign business entities for incentives in the economic zones and how much revenue is lost for giving incentives, Abu Hena Md Rahmatul Muneem said a decision can be taken in this regard after analysing tax incentives with other countries.
Although other countries, including India, have lower corporate tax rates, there are other taxes too, he added.
Salman F Rahman, the prime minister's adviser for private industry and investment, said Bangladesh needs to bring parity in its tax rates considering the corporate tax rates of neighbouring countries. Referring to the NBR chairman's statement, he said Bangladesh also has other taxes alongside corporate tax.