Economic zone investors worried over Beza’s sudden service charges

Bangladesh Economic Zones Authority (Beza) has apparently gone back on its words to recently impose utility service charges, topped off with VAT, alongside a conservancy charge on investors.

In a circular issued on June 19 last year, Beza said no utility service charge and associated value added tax (VAT) would be imposed if those are used for goods production.

However, it recently sent letters to lessees inside the country's economic zones seeking cooperation in the payment of a 5 per cent service charge on every utility service including water, electricity and gas alongside effluent treatment and waste recycling.

Stating that the decision was taken way back on January 5, 2017, it also asked investors to pay a 15 per cent value added tax (VAT) on the service charges in a separate chalan as per the VAT and Supplementary Duty Act 2012.

A copy of the chalan has to be submitted at the Beza office, it said.

Moreover, $0.05 has to be paid per square metre of land or infrastructure leased at any economic zone as conservancy charge, it added.

Investors will lose interest in the zones if Beza imposes these additional charges as they were not included in the original land lease agreement, according to Ashraful Haq Chowdhury, senior vice president of Bangladesh Economic Zones Investors Association(BEZIA).

"We are supporting the government in its efforts to attract more investment and help our economy reach the next level," Chowdhury said.

"So, the government should give similar support and help address our problems and obstacles," he added.

Such decisions out of the bluediscourage both foreign and local investment in the country's economic zones, said Chowdhury.

In many neighbouring countries, the governments offer lucrative benefits such as VAT exemption on service charges and utilities to attract investors to their economic zones, he said.

For example, Vietnam, Malaysia, Thailand, India, Uruguay, Kuwait, Taiwan and the Philippines have all assured their investors that their bills on use of natural resources will be reduced, he added.

"And we should follow this example," Chowdhury said, adding that Bangladesh should offer more incentives compared to other countries in order to secure more investment.

Echoing the sentiment, Mir Masud Kabir, managing director of Bangladesh Auto Industries, also confirmed that Beza had not included any clause about the VAT and utility service charge in the original contracts.

Earlier, BEZIA sought intervention from the Prime Minister's Office (PMO) to help address some of the obstacles for investment in the country's economic zones.

Potential investors were recently blindsided by the implementation of a 15 per cent VAT charge for land leased at any of the various economic zones.

Besides, investors are unable to attain bank loans against the rented land due to the unfavourable conditions of leasing policies, BEZIA said in its statement to the PMO.

"Our confidence and expectations were shattered when we unexpectedly received letters from Beza regarding the VAT issue," the statement read.

"Furthermore, we are keen to enjoy our tax holiday as provided for industrial units, regardless of what they produce within the economic zones," it added.

BEZIA also said lessees were facing indefinite delays in being handed over their land at economic zones and were also in uncertainty over whether the infrastructure and facilities promised by Beza would actually materialise.

This includes the construction of a port facility at Bangabandhu Sheikh Mujib Shilpa Nagar in Mirsarai, Chattogram, a project which has already far exceeded its completion deadline.

It is true that investors were exempted from paying all types of VAT and received varying tax holidays for periods determined on a case-by-case basis, according to BEZIA.

However, the National Board of Revenue in June issued a notice declaring that 15 per cent VAT would now be imposed on the lease of land.

Upon being contacted, Beza Executive Chairman Paban Chowdhury said the service charge was very nominal.

"And since Beza is providing the land at a cheap rate, it is placingthis nominal charge for maintenance costs," he added.

According to Chowdhury, Bangladesh Export Processing Zones Authority (Bepza) charges 200 per cent more on these services.

"We will provide all kinds of facilities inside the zones while bearing all maintenance costs for utility lines. So, we need service charge to ensure dedicated utility service for each industrial unit," he said.

Before investors can even come up with any complaints, Beza plans to provide generous incentive packages that would improve the country's investment climate and attract more foreign investors for the economic zones, he added.

"We have submitted proposals to the PMO on how we can offer policy support and incentives to both domestic and foreign investors," Chowdhury said, adding that industrial units which can be established by 2023 would be offered full exemption from corporate tax for 10 years.

Local factories, like export-oriented industrial units, should be entitled to bonded warehouse facilities, which exempt exporters from paying customs duties when importing and storing raw materials for a certain period.

Beza also called for VAT charges on land leasing to be waived for foreign companies looking to set up factories here as it erodes the country's competitiveness as a lucrative investment destination.

As of September, Beza received investment proposals totalling $23 billion from over 200 local and foreign business entities. Of this amount, about $3 billion has already been invested in different special economic zones.

A further $10 billion will come as foreign direct investment from companies originating in China, South Korea, Japan, India, Singapore, the UK, Australia, Malaysia and the US.

The remaining $10 billion will be invested by 60 local companies, including TK Group, Karmo Foam Industry, Mango Teleservices, BDCOM Online, Bashundhara Group, Siraj Cycle Industries and Abdul Monem.