INDIA: FBCCI proposes withdrawal of tax benefits for foreign investors.

As published on tbsnews.net, Tuesday 4 January, 2022.

The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) has come up with a proposal to scrap fiscal incentives, such as tax exemption, offered to foreign investors, lenders and workers, to address the discrimination between local and foreign businesses.

Instead, the apex trade body has suggested imposing normal direct tax, which they deem as the global best practice.

But representatives of foreign investors say the FBCCI's proposal contradicts the government's ongoing efforts to bring in foreign direct investment (FDI). If the demand is met, FDI inflow will hit a snag.

On the other hand, government policymakers opine that the government has given some benefits to bring in foreign investment at different times. Given the present reality, a decision about whether it is now required to continue such benefits or not can be taken.

However, economists say there should not be any discrimination between local and foreign investors in tax and other fiscal benefits. It is also necessary to consider if the country is benefiting from FDI inflow by offering extra benefits.

The FBCCI has formulated a report on measures needed to cope with possible challenges stemming from Bangladesh's graduation from the least developed country status. The report emphasises measures required to enhance investment for sustainable inclusive development.

Sources at the FBCCI said the report will be formally handed over to the government soon.

FBCCI President Md Jashim Uddin told The Business Standard, "We want equal opportunities for all [both local and foreign investors]."

Citing eight specific areas of fiscal facilities that foreigners are currently enjoying, the FBCCI has made recommendations on what kinds of initiatives should be taken to ensure equal opportunities for both local and foreign businesses.

Under the present fiscal incentives, foreign investors, lenders and workers are now enjoying tax exemption on royalties, technical know-how and interest on foreign loans, and capital gains from transfer of shares by investing companies.

Besides, expatriate personnel employed under the approved industries are now exempted from income tax for up to three years.

The National Board of Revenue (NBR) currently has agreements with 34 countries on avoidance of double taxation in the case of foreign investors.

The FBCCI's proposal states that taxes should be paid wherever income is earned.

Currently, private power companies are relieved of corporate income tax for a period of 15 years. The FBCCI has proposed levying normal tax in this case.

In addition, in some cases, foreign investors are given exemption from duty and VAT on the imports of machinery and spare parts, while they also get some additional benefits in terms of insurance. On the other hand, the instruments and deeds required to be registered under local regulations are exempted from stamp duty payment.

In such cases, the trade body has suggested that there be no discrimination between local and foreign investors.

FBCCI Adviser Manzur Ahmed told TBS, "Local investors around the world get additional benefits, but what we see in Bangladesh is the opposite. Yet, foreign investments have not increased as expcetd. We want equal benefits for all."

Former NBR member (Tax policy) Md Alamgir Hossain said the government had to offer some benefits to foreign investors, given the past crisis. For example, fiscal benefits were offered to encourage FDI in strengthening the power sector and the stock market.

Some of such benefits will end in the next one and half years, he also said.

"We can only consider giving benefits for foreign investments in those sectors where Bangladeshi still remains behind," the FBCCI adviser said.

Al Mamun Mridha, joint secretary general of Bangladesh China Chamber of Commerce & Industry, told TBS, "The government and we businessmen are working worldwide to bring in FDI. If the fiscal benefits are cancelled, investors will shy away."

However, Dr Ahsan H Mansur, executive director at the Policy Research Institute, said there should not be any discrimination between local and foreign investors.

"We also need to see if we are really benefiting from FDI by offering additional benefits," he continued.

There is also inequality in benefits for investors inside special economic zones, he pointed out.

The most essential and foremost prerequisites of congenial investment environment that the FBCCI has suggested include one stop services to simplify regulations and mandate a rapid response request to each relative ministry, easing business registration requirements, quality of availability of human capital, reducing the cost of establishing a new investment ensuring post-investment facilitation in the most professional way.

According to the latest investment data released by the United Nations Conference on Trade and Development, FDI inflows in Bangladesh in 2020 amounted to $2.6 billion, which was about 11% lower than in the previous year.

A review of FDI data for the previous six years found that almost every year FDI hovered around $2.5 billion. In 2018 alone, it crossed the $3 billion mark.

The Bangladesh Investment Development Authority estimates that since FY18, both domestic and foreign investments in the country have been declining.

The government has been taking various initiatives over the last one decade to increase FDI, but investors say Bangladesh is yet to see an expected flow of investments as it is still lagging behind in the ease of doing business.

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