Staff Reporter :
The International Monetary Fund (IMF) has proposed discontinuing the tax exemption facility for the information technology (IT) industry, which is scheduled to end in June 2024.
The visiting delegation of the multi-national lending firm came up with the proposal in a meeting with the high officials of the National Board of Revenue (NBR) at the latter’s office in the city on Sunday.
The other proposals of the global lender are abolishing tax breaks on clothing, footwear, LPG, and mobile phones, which may increase revenue by 0.31 percent of GDP.
It also suggests repealing the depletion allowance provided for mining and petroleum extraction, eliminating or establishing caps on input VAT deductions for entertainment and VAT on meals, and requiring all businesses with turnover greater than Tk 3 crore to be in the standard 15 percent VAT with input tax credits; eliminating their option for truncated VAT.
The global lender also proposed to reform revenue administration for all three wings. With this move, revenue will be raised by 0.15 percent of GDP, the IMF expects.
The NBR officials accepted the IMF proposal; however, they showed dismay against the withdrawal of the exemption facility for all IT services as it may disrupt sector growth, according to revenue board officials.
Experts opined that some facilities should be withdrawn from the IT sector, but others should be continued for security services such as cloud computing and cyber security because now foreign companies have brought huge money from Bangladesh to provide such services.
If the exemption is withdrawn, the income of the respective IT services companies will be subject to a 27.5 percent corporation tax.
An analysis of the NBR showed that now the government gives an exemption worth around Tk 1,477 crore annually to IT services. However, insiders said that if net profit is supposed to be 10 percent, then the local market should be around Tk 50,000 crore to get such an amount of tax expenditure.
According to the Bangladesh Association of Software and Information Services (BASIS), the annual domestic market size in the ITES sector is around Tk 2,000–2,500 crore, but the contribution of the sector to the economy is uncountable and huge, as agriculture, education, health, media, and RMG sectors use technology and earn a notable portion of their income.
BASIS President Russell T. Ahmed told The New Nation, “The sector is facing numerous challenges every moment. If the sector is taxed, it will be a disaster.”
“IMF’s prescription is theoretical, and they do not understand the situation in our country. However, our governmentis pro-IT services to make the country smart, and there is opportunity to make every sector smarter,” he said.
“The sector does not get banking finance, and its raw material is mostly talent. Besides, our talented ones do not get intellectual property. So, if such a move is executed, brain drain will increase as our costs will jump up, we will lose our competitiveness, and imports will rise,” Russell added.
Citing NBR’s analysis as wrong, he said, “NBR should be smarter in its analysis. A couple of groups of companies take advantage of an exemption facility in the name of their small IT companies. It is the responsibility of the NBR to catch loopholes and evasion, and there is no scope to tax small and medium startups and IT service companies. The sector will be the most USD-earning source after RMG.”
In the meeting, NBR officials were informed that they are collecting revenue with just the provisions or laws, but enforcement is not sound yet.
So they want to strengthen enforcement, which will enable them to meet the IMF revenue collection target, the NBR officials who attended said.
They further said the random withdrawal of tax exemptions will have a negative impact on the country’s economy.
In a bid to get the third tranche of a $4.7 billion loan from the IMF, the government of Bangladesh should take these policy measures by June this year in line with the global lender’s recommendations. Besides, there are 38 conditions to get the full amount of the loan.
In the revenue part, the IMF has stipulated conditions to increase the tax-to-GDP ratio by 0.5 percentage points in FY24, followed by 0.5 and 0.7 percentage points in FY25 and FY26, respectively.
