The government has nearly finalised the Foreign Grant Regulation Act 2014, aiming to attract Japanese, Chines and Indian investment in the 13 Economic Zones mainly through relaxing tax and citizenship issues.
During a meeting in the last week of September, a high-level meeting with Finance Minister AMA Muhith in the chair, discussed the draft act and placed initial recommendations. Sources said, the draft will be finalised once the prime minister gave time.
If the FGR act is passed, there will not be any limitation on the amount of inward foreign direct investment (FDI) in the economic zones (EZs); local investors will be able to take over assets and industries owned by foreign farms; foreign investors will enjoy elongated tax holidays and duty exemptions; and be able to repatriate their entire income.
Reportedly, Bangladesh officials, in consultation with Japanese, Chines and Indian officials, have already prepared a list of 26 categories of incentives including relaxed citizen ship facilities; customs, VAT and income tax stipulations; foreign exchange, capital gain, share transfer, local sales and sub-contract issues.
Moreover, a further nine-point incentive package will be offered to those foreign and local investors interested in developing the 13 proposed EZs.
Currently, five EZs are being developed under a World Bank-financed project on 3567.71 hectares of land in Khulna, Sirajganj, Chittagong and Sylhet. Apart from these, 13 other economic zones will be developed under the government’s public-private partnership scheme.
Officials of EZ authorities said China had expressed interests about investing in the EZ in Mirsorai in Chittagong and Japan had sought a separate EZ near Dhaka. The government however has proposed to give Japan space in Chittagong.
Other than Japan, China and India, investors from Thailand, Malaysia, Vietnam and Myanmar are also interested in investing in Bangladesh, officials said.
In December 2013, the amount of total foreign direct investment was $8.6bn, of which China’s contribution was $116.98m and Japan’s $342.77m.
In the FY2014-15 budget, the government allocated Tk300 crore for developing the 13 EZs.
Incentive for EZ developers
According to a presentation of the draft law given during the September meeting, those who are interested in developing the EZs will be offered tax and VAT holidays of up to 15 years.
The proposal said the developers would enjoy full holiday in the first 10 years; and 70% waiver for instance for the 11th year, 30% discount for the 12 years, and so on.
EZ authorities have also sought exemption of custom, land stamp and credit registration duties and income tax on dividend and service taxes.
Incentive for foreign investors
That meeting, held at the Finance Ministry, also decided to offer a similar tax exemption scheme for the foreign investors as well. A proposal says they would be offered 100% holiday for the first 10 years and gradually reduction by 10% in the subsequent 10 years.
The investors will also be allowed to fully repatriate their capital and dividend incomes, which the existing rules do not permit. Moreover, capital gain of firms and transfer of shares will be considered tax free incomes and re-investment through dividend and profit would be treated as FDI.
The incomes of the experts who will work in the EZs and the foreign firms, royalties and technical fees will also be tax-free. Industry owners can import two cars without paying taxes for five years. Electricity to be consumed by the factories will be tax-free as well.
Investors can also bring up to 5% of their workforce from abroad; the remaining 95% will have to be recruited from Bangladesh.
Foreign investors will be able to bring in their capital in the EZs in joint venture with Bangladeshi firms and will be able to operate foreign exchange dealings in the local commercial banks.
Investors will now have to put in at least $100,000 to qualify for permanent residence permit. Under the existing rules, the ceiling is $75,000. Any foreigner, who invests more than $5m in an heavy industry, will not require visa to stay in Bangladesh.