Software makers in a tight corner

Local software developers have expressed concerns about the budget proposal that cut duty on imported software, saying the measure will help foreign products flood the Bangladesh market at the expense of domestic ones.

On June 7, Finance Minister AMA Muhith proposed reducing duties on all imported software from 25 percent to 5 percent.

Industry people said in 2017-18 the government gave a tax benefit to local companies by withdrawing the value added tax on homegrown software in a boost to the sector.

But the proposal to grant the tax benefit to international companies will put the existence of local firms under threat, said Syed Almas Kabir, president of the Bangladesh Association of Software and Information Services (BASIS).

“If the customs duty is lowered, local software companies will become extinct,” Kabir said.

He said the duty cut should be applied to only four types of the software such as operating systems, database, development tools, and cybersecurity software as Bangladesh does not produce them at all.

“To expedite and expand IT and computer use, I propose an import duty cut of some software which is not developed in Bangladesh,” Muhith said in his budget speech.

In its budget proposal, the BASIS had called for  reducing the import duties on the four types of software. But Muhith has cut the import duty on all imported software.

“This change will badly affect the small-scale developers,” said Rafiqul Islam Rowly, managing director of CSL Software Resources Ltd.

“It is true that we can't develop large-scale software. But because of the tax cut, software from India will flood Bangladesh market, particularly accounting software. As a result, our industry will cease to exist,” said Rowly, also a former president of the BASIS.

For the four types of software, there is no other alternative but to decrease their price, Rowly added. “In this case, the government can consider fixing a price ceiling and grant the tax benefit to the products that are priced above the limit.”

Foreign companies control about 70 percent to 80 percent of Bangladesh's software market, according to Fahim Mashroor, a director of the BASIS.

Since the change in the tax structure in 2017-18, local companies have started to fare well, he said. “But the new development will help foreign firms get much bigger stake again,” said Mashroor.

Bangladesh's market consumes software worth about Tk 1,000 crore every year and it is growing significantly. Local businesses export software worth $800 million a year. The BASIS has also opposed the finance minister's proposal to withdraw VAT on imported software.

In 2017-18, there was 5.5 percent VAT on imported software and no VAT on the locally developed ones. Mashroor said as the government created a tax gap, some international companies even started to think about developing software locally by setting up plants in Bangladesh.

But such plans will not translate into reality now, he said. Shameem Ahsan, chairman of IT firm eGeneration, said the government has put in place some stringent conditions that bar local IT firms to bid for government projects.

One of the conditions is a local company must have $10 billion in turnover in a particular year in the last 10 years to vie for a government project. But no local companies can meet the condition, said an IT entrepreneur, requesting anonymity.

“This is a conspiracy against the industry and against the nation, and the policymakers need to address it,” he said.

Local entrepreneurs had also sought withdrawal of VAT on IT-enabled services, but Muhith raised it to 5 percent from 4.5 percent. Mustafa Jabbar, telecom and ICT minister, said the proposed budgetary measures for the ICT sector have also frustrated him personally. “We shouldn't do anything that discourages the young generation as we are planning to build Digital Bangladesh riding on their strength,” said Jabbar, also a former president of the BASIS.

Not only the software issue, there some other areas in the proposed budget that conflict with the government's Digital Bangladesh Vision, the telecom minister said.

Jabbar said he would sit with the finance minister to resolve the issue.