BASIS calls for long-term policy support
Players in the ICT industry of Bangladesh have urged the government to adopt long-term policies, which include extending income tax exemption for the sector by six years and incentivising exports of IT-enabled services (ITES).
The Bangladesh Association of Software and Information Services (BASIS) recently submitted these demands to the National Board of Revenue, citing that such measures would help diversify the country's export basket and thereby combat the ongoing US dollar crisis.
In addition, BASIS urged the government for tax-free imports of laptop and desktop computers as well as zero VAT on local software purchases.
"We are in a new reality this year as the ongoing [Russia-Ukraine] war has disrupted much of the world, leading to the US dollar crunch in our country," said Russell T Ahmed, the president of BASIS.
"And with the government having announced its plans for Smart Bangladesh, we need these benefits and policy support to attract investment for the ICT sector," he added.
Ahmed went on to say that long-term policy commitments from the government are key in this regard.
"For example, the National Board of Revenue [NBR] mainly tries to meet its annual revenue target by any means, but we need sustainable policies in place of such practices," he said.
With income tax exemptions for 28 types of ITES companies scheduled to end by June 2024, BASIS urged the revenue authority to extend the benefit by about six years to 2030.
The government previously declared ICT as a priority sector in its policies and set the target of exporting $5 billion worth of the industry's products and services by 2025.
With the government having announced its plans for Smart Bangladesh, we need these benefits and policy support to attract investment in the ICT sector.
With this backdrop, BASIS said it is important to increase the cash incentive on exports of ITES services to 20 per cent considering how the existing 10 per cent incentive has already taken earnings from the sector to new highs.
BASIS made these demands in its budget proposals to the NBR for fiscal year 2023-24, beginning in July.
Bangladesh will lack the scope to offer cash incentives after graduating from a least developed country in 2026 and so, raising these benefits now would help explore new markets and thereby bring in more foreign currency.
Ahmed then said that as value addition in IT exports is almost 100 per cent while providers only need adequate equipment, the government should withdraw the VAT on laptops. The government imposed 15 per cent VAT on imported laptops for the current fiscal, taking the total taxation to over 30 per cent.
Coupled with other factors, such as the hike in global prices for digital devices, industry people said the government's decision has significantly impacted sales as prices have risen by 50 per cent.
"Laptop sales dropped by 40 per cent after the imposition of VAT and a grey market has boomed. So, I think revenue collection from laptop imports should be stopped," said Ahmed Hasan, managing director of Ryans IT.
Earlier, people could buy a laptop with Tk 30,000 but now, they need Tk 50,000.
"VAT on laptops should be withdrawn as this would ultimately bring discipline to the market," he added.
BASIS President Ahmed said another crucial thing for the government is to withdraw the 15 per cent VAT on local software purchases and give a certain percentage of cash incentive to the buyers.
"This would save a huge amount of foreign reserves," he added.
Other demands of BASIS include reducing the corporate tax for internet service providers to 10 per cent, withdrawing duty from cyber security products, and forming a Tk 300 crore fund for women entrepreneurs in the ICT sector.
Since a huge amount of foreign software is imported every year and there is an ongoing US dollar crisis, the NBR should increase the customs duty so that imports reduce, according to AKM Fahim Mashroor, chief executive officer of bdjobs.com
"This will create an opportunity for locally-made software," he said.
Mashroor then said the VAT on mobile handsets should also be reduced as sales have fallen drastically with prices having risen in recent months.
"If common people cannot afford smartphones, the digital or Smart Bangladesh initiative will not be successful," he added.
The government imposed 5 per cent VAT on handset sales this year but this means that 15 per cent VAT is ultimately paid as there are three stages of sales, said Mohammad Mesbah Uddin, chief marketing officer of Fair Electronics, Samsung's local assembly partner.
The mobile manufacturing industry is facing a grave crisis as many people are now unable to buy devices due to price hikes.
"So, the VAT should be exempted in the upcoming budget," he added.
BASIS President Ahmed said the current prime minister made computers 100 per cent tax-free during her first term.
"That historical decision laid the foundation for digital Bangladesh. Now, we need such visionary policy support that will boost exports of IT services, solve the dollar shortage and make a Smart Bangladesh," he added.