Policy changes in the offing to boost foreign investment

As part of measures to attract foreign investment, the government is going to allow foreign companies operating in Bangladesh to pay up to around Tk85.06 lakh ($1 lakh) in service charges without the prior approval of the Bangladesh Bank.

The process of sending foreign currency by foreign workers in Bangladesh to their home countries is being further eased.

Moreover, capital and dividend repatriation ceilings may also be raised without the prior approval of the central bank.

An official of the Bangladesh Bank said the decisions have been made to ease the repatriation of money and foreign currency exchange.

He said separate circulars on these matters will be issued soon.

The decisions were made at a recent meeting with top executives of foreign companies operating in Bangladesh. The meeting was arranged to determine foreign entrepreneurs' opinions on removing the complexities that stand in the way of creating an investment-friendly environment for them.

At the meeting, foreign investors identified foreign exchange complexities and an unstable tax policy as the key obstacles to doing business in Bangladesh.

Cabinet Secretary Khandker Anwarul Islam presided over the meeting, while Governor of the Bangladesh Bank Fazle Kabir, Finance Secretary Abdur Rouf Talukder and Chairman of the National Board of Revenue (NBR) Abu Hena Md Rahmatul Muneem attended it.

Under the existing policy, foreign companies can pay up to 1% of the turnover declared on their previous year's tax returns in service charges without the prior approval of the Bangladesh Bank.

Kedar Lele, chairman and managing director of Unilever Bangladesh Limited, told the meeting this is not an obstacle for big companies, but companies with small and medium turnovers are facing trouble.

The meeting decided to change the policy so that the higher amount, between 1% of the declared turnover and $1 lakh, will be allowed to be sent abroad in service charges without the prior approval of the central bank.

Naser Ezaz Bijoy, chief executive officer of Standard Chartered Bangladesh has said, foreign employees of non-exporting foreign companies registered in Bangladesh do not have the opportunity to open foreign currency accounts. That is why they receive their salaries and allowances in the local currency, use the money to buy foreign currency, and then send it to their home countries.

This process involves risk and extra cost, and that is why many people are interested in sending money through hundi, he said.

An official of the Bangladesh Bank told The Business Standard, "Foreign workers have the opportunity to open foreign currency accounts. However, they have to send their salaries to their respective countries from company accounts."

"Officials of the companies have told us about some complexities in this regard. We will hold a meeting with the banks concerned this week," he added.

According to the existing rules, foreign companies can repatriate foreign currency equivalent to Tk1-10 crore without the prior approval of the central bank.

But the top executives of the foreign companies think the ceiling is inadequate for large investors. They proposed raising the limit to encourage foreign investment.

Officials at the central bank said the limit could be raised to Tk12 crore.

The meeting decided to set up a panel of valuers to determine the fair value of foreign and joint venture firms.

However, officials of the Bangladesh Bank said this would not be a logical move, because the risk of irregularities would increase if a few audit firms were included in the panel.

Neil Coupland, managing director of United Tobacco Company Limited (Japan Tobacco), said foreign entrepreneurs interested in investing in Bangladesh have few entry barriers but many exit barriers.

This creates a lot of problems when it comes to investing in Bangladesh, he said.

The governor of the Bangladesh Bank said foreign exchange transaction management was once quite regulated in Bangladesh, but now it is very liberal.

He said its application in Bangladesh is in harmony with other countries.

Foreign investors want a stable tax policy

Noting that investment plans become risky due to frequent changes to Bangladesh's tax policy, Neil said there is no long-term plan in the policy.

He said tax rates change every year and foreign investors would be able to plan their investments accordingly if there were a long-term roadmap for taxation.

The chief executive officer of Standard Chartered Bangladesh concurred, saying the Bangladesh Bank and Bangladesh Investment Development Authority have eased various policies and rules to attract foreign investment.

But, he said, existing investors are suffering while new ones are not interested in investing in Bangladesh due to a lack of predictability regarding NBR's policy.

He also said NBR's tax policy needs to be more investment-friendly.

Samsung Bangladesh Managing Director Ruhul Alam Al Mahbub said a stable tax policy, including keeping tax exemptions, is needed to attract foreign investment to Bangladesh.

Bangladesh Honda Private Limited Managing Director and Chief Executive Officer Himihiko Katsuki said a tax policy that ensures a level playing field for foreign companies should be adopted.

Kedar said the NBR needs to ensure that taxes are levied according to the double tax avoidance agreement during dividend and sales repatriation of foreign companies.

The NBR chairman said the revenue board is working diligently to provide all logical and legal support to create an environment favourable for foreign investment.