Tax Holiday practice in Bangladesh

Wpfreeware 6:49 AM Tax Holiday practice in Bangladesh

A tax holiday is a government incentive program that offers a temporary reduction or elimination of corporate income taxes to encourage investment and stimulate economic growth in specific sectors or regions. In Bangladesh, tax holidays are a significant part of the government's strategy to attract both domestic and foreign investment. Here's an overview of the practice of tax holidays in Bangladesh:

Overview of Tax Holidays in Bangladesh

  1. Eligibility:

    • Tax holidays are available to specific sectors and types of industries that the government wishes to promote. These typically include manufacturing, infrastructure development, and certain service industries.
    • Both domestic and foreign investors can benefit from tax holidays, provided their projects fall within the eligible categories.
  2. Duration:

    • The duration of the tax holiday can vary depending on the industry and location of the investment. Generally, tax holidays are offered for a period ranging from 5 to 10 years.
    • Extended periods may be granted for investments in less developed or strategically important regions to promote regional development.
  3. Geographical Incentives:

    • Investments in economically lagging regions, such as those identified as less developed or remote areas, often receive longer tax holiday periods compared to investments in more developed areas.

Key Sectors for Tax Holidays

  1. Manufacturing:

    • Industries involved in manufacturing a wide range of products, including textiles, leather goods, electronics, and food processing, are commonly eligible for tax holidays.
    • Specific incentives are also provided to export-oriented manufacturing industries to boost international trade.
  2. Infrastructure Development:

    • Projects involving the construction of roads, bridges, power plants, and other critical infrastructure are often granted tax holidays to encourage private sector participation in national development.
  3. Information and Communication Technology (ICT):

    • The ICT sector, including software development, IT services, and IT-enabled services, is a major focus area for tax holidays to promote the digital economy.
  4. Tourism:

    • Investments in the tourism sector, such as the development of hotels, resorts, and entertainment facilities, are incentivized to attract both domestic and international tourists.

Conditions and Compliance

  1. Application Process:

    • Investors seeking tax holiday benefits must apply to the National Board of Revenue (NBR) with detailed project proposals, including business plans and financial projections.
    • Approval is granted based on the project's potential economic impact, alignment with national priorities, and compliance with relevant regulations.
  2. Compliance Requirements:

    • Beneficiaries of tax holidays must adhere to specific conditions, such as maintaining accurate financial records, meeting employment targets, and adhering to environmental regulations.
    • Regular audits and compliance checks are conducted to ensure that the terms of the tax holiday are being met.
  3. Reporting Obligations:

    • Companies benefiting from tax holidays are required to submit periodic reports to the NBR, detailing their financial performance and the status of their projects.
    • Failure to comply with reporting requirements can result in the revocation of tax holiday benefits.

Recent Trends and Reforms

  1. Policy Adjustments:

    • The government periodically reviews and updates the tax holiday policy to align with changing economic priorities and global investment trends.
    • Recent reforms have focused on enhancing transparency, simplifying the application process, and broadening the range of eligible sectors.
  2. Sustainability Focus:

    • There is an increasing emphasis on promoting environmentally sustainable projects. Tax holidays may include additional incentives for investments in renewable energy, waste management, and other green technologies.

Benefits of Tax Holidays

  1. Investment Attraction:

    • Tax holidays make Bangladesh an attractive destination for both local and foreign investors, encouraging significant capital inflows into the economy.
  2. Economic Growth:

    • By reducing the tax burden on new and expanding businesses, tax holidays facilitate industrial growth, job creation, and technological advancement.
  3. Regional Development:

    • Targeted tax holidays help promote balanced regional development by incentivizing investments in less developed areas.

In summary, tax holidays in Bangladesh are a strategic tool used by the government to foster investment, stimulate economic activity, and promote regional development. While they offer significant benefits, their implementation requires careful planning, monitoring, and periodic review to ensure they achieve the desired economic outcomes.

Tax holiday is allowed to industries subject to the relevant rules and procedures set by the National Board of Revenue (NBR). Presently, it is allowed for 5, 7, 9 and 12 years for industries set up in the developed, less developed, least developed and special economic zones respectively. The period of such tax holiday is calculated from the month of commencement of commercial production. The eligibility of tax holiday is to be determined by the NBR and the commencement of production is certified by the respective sponsoring agencies.

Condition for Tax Holiday:

Period of tax holiday has been further extended for 3 years beyond 30th June, 2008 in respect of industrial undertaking, tourist industry and physical infrastructure facility subject to following conditions:

  1. The undertaking is set up in Bangladesh between 1st July, 2008 and 30th June 2011;
  2. Act of Parliament having head office in Bangladesh or (ii) a company defined under Companies Act 1913 or 1994 having subscribed & paid up capital of not less than Taka1,000,000 on the date of commencement of commercial production;
  3. The undertaking is engaged in: [Section 46(B), Para # 2]
    1. ✓ The Industrial Undertaking in the production of textile, jute, high value garments(Overcoats, jackets & suits), pharmaceuticals, melamine, plastic, ceramics, sanitary,
    2. ✓ Providing on commercial basis, physical infrastructure facilities;
    3. ✓ Tourist industry as defined in the explanation to Section 46;
  4. 30% of the tax exempted income to be invested in the same undertaking or for a new industry during the period of exemption or within one year of expiring tax holiday period. An additional10% profit has to be invested each year within 3 months of closing the income year purchasing shares of listed companies in Bangladesh;
  5. The undertaking is not formed by splitting up or by reconstruction or reconstitution of an existing business or by transfer to a new business of any machinery or plant used in Bangladesh at anytime before commencement of the new business;
  6. An application shall be filed with the Board for approval of the undertaking within 6months from the end of the month of commencement of commercial production or operation, and the undertaking must be approved by the Board;

Computation of Tax Holiday Income

  1. The profit and gain shall be computed under the head income from business or profession(section 28)
  2. Loss sustained in a tax holiday undertaking shall not be set off against profits of taxable units. Loss shall be carried forward to be set off against income from same undertaking in the following years, but not beyond tax holiday period;
  3. Only normal depreciation allowance, if any, shall be allowed;
  4. Any dividend distributed by a tax-holiday company to its shareholders out of its exempted profit shall not be exempt from tax;
  5. Capital gains earned by tax holiday undertaking shall not be exempt from tax; Income of the said undertaking resulting from disallowance made under section 30 shall not be exempted from tax;
(i) Industrial Undertaking Eligible for Tax holiday:
  1. Active pharmaceuticals ingredient industry and radio pharmaceuticals industry;
  2. Barrier contraceptive and rubber latex;
  3. Basic chemicals or dyes and chemicals;
  4. Basic ingredients of electronic industry (e.g. resistance, capacitor, transistor, integrator circuit);
  5. Bio-fertilizer;
  6. Biotechnology;
  7. Boilers;
  8. Compressors;
  9. Computer hardware;
  10. Energy efficient appliances;
  11. Insecticide or pesticide
(ii) Physical Infrastructure Eligible for Tax holiday:
  1. Deep sea port;
  2. Elevated expressway;
  3. Export processing zone;
  4. Flyover;
  5. Gas pipe line,
  6. Hi-tech park;
  7. Information and Communication Technology (ICT) village or software technology zone;
  8. Information Technology (IT) park;
  9. Large water treatment plant and supply through pipe line;
  10. Liquefied Natural Gas (LNG) terminal and transmission line;
  11. Mono-rail;
  12. Rapid transit;
  13. Renewable energy (e.g. energy saving bulb, solar energy plant, windmill);
  14. Sea or river port;
  15. Toll road;
  16. Underground rail;
  17. Waste treatment plant; or
  18. Any other category of physical infrastructure facility as the Government may, by notification in the Official Gazette, specify
For more information and latest updates:
  1. National Board of Revenue (NBR)
  2. NBR Publication-Income Tax at a Glance
  3. Seven new sectors may get tax holiday - The Daily Star

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