Corporate tax cut along with political stability a must to attract FDI

A 20 per cent reduction in corporate tax has the potential to attract 14 times more foreign direct investment (FDI) to Bangladesh, while on the other hand, a 30 per cent depreciation of the local currency could result in a 30 per cent increase in customs duty.

These perspectives emerged from separate events in Dhaka on Sunday.

A study showed that reduced tariff rates mean lower import costs for foreign investors who want to bring in raw materials or components for their production processes.

This cost reduction enhances the attractiveness of investing in the country and paves the way for expanded market access for foreign companies.

The report indicates that if the tax rate is increased by 20 per cent over the next 10 years compared to the present, then GDP may only increase by less than 6 times, and revenue collection may increase by less than 3 times.

Similarly, the report also shows how an investment-friendly tax environment is helpful in increasing FDI and revenue.

It has been clarified in the report that tax rate and tax environment play a supportive role in increasing FDI and tax collection in the long run.

In Bangladesh, the current corporate tax rates range from 20 per cent to 45 per cent.

In the last three national budgets, the non-listed companies’ tax rate in the stock market has been reduced by 2.5 percentage points.

Experts said taxation policies including corporate income tax rates, tax incentives and exemptions have a profound impact on foreign investors’ decisions to invest in a particular country.

While low tax rates may attract foreign businesses by enhancing after-tax profitability, tax incentives can further incentivize FDI inflows into specific sectors or regions.

To attract foreign investments, countries should adopt a holistic approach, addressing not only tax policies but also factors like political stability, infrastructure and market potential.

Apart from the tax rate, there are other obstacles in attracting local and FDI in Bangladesh.

We must admit increasing investment and revenue collection are both necessary.