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Dhaka Tribune

How will ‘Smart Bangladesh’ happen without the necessary budgetary support?

The budget proposed to impose a 15% value-added tax (Vat) on the crucial components of the growing IT sector: laptops, as well as printers, toners etc

Update : 12 Jun 2022, 07:13 PM

Although the government has been planning to build a “Smart Bangladesh” by the year 2041 by developing the IT sector and even declaring the current year as the year of IT products, the proposed budget did not reflect any plans to help the private sector participate in the effort.

On the contrary, the budget proposed to impose a 15% value-added tax (Vat) on the crucial components of the growing IT sector: laptops, as well as printers, toners etc. 

Moreover, internet services have not been included in the list of IT Enabled Services (ITES) despite being the primary ingredient of Digital Bangladesh, which would have exempted Internet Service Providers (ISP) of 10% advanced-income tax (AIT) making broadband services much cheaper.  

Industry insiders think the moves will not only increase the cost for both traders and consumers but would also hamper the automation of business and other processes in the country.  

“Introducing a 15% Vat on imported laptops, computer printers and toner cartridges will limit the growth of automation,” Syed Almas Kabir, the current president of BMCCI and former Basis leader told Dhaka Tribune. 

Kabir also said that it is very discouraging to see ISP not being included as ITES, even though it has long been proposed.

“This would exempt the ISPs from corporate tax including the 10% AIT, and would make broadband internet significantly cheaper for the end-users. 

“Expansion of broadband internet connectivity will increase economic activities in remote areas. Affordable broadband internet would generate new businesses including increased digital commerce, ICT freelancing, ITES export, etc,” Kabir said.

Calling the proposed import duty VAT on laptop imports as illogical, FBCCI President Jashim Uddin said: “Although laptops are produced locally, their quality is not up to the mark and the VATwill only deter the digitisation process of the country.”

Additionally, according to the Bangladesh Association of Software and Information Services (Basis) vice-president Abu Daud Khan: “Although the allocation for the IT sector in the budget has increased by 16.69% or about Tk274 crore compared to the last fiscal year's revised budget, there was no clear indication as to which projects or sectors the money will be spent on and how it will benefit the IT industry and its entrepreneurs.”

On the other hand, local software and technology-based services are now subject to a 5% withholding value-added tax at the business level, association leaders pointed out at a post-budget discussion.

In order to encourage foreign investment in the IT sector, the association had proposed to extend the tax exemption from 2024 to 2030, but this was not reflected in the budget, Basis leaders said.

“I expected the government would waive the 10% AIT on ITES and 5% VAT on software to encourage the local IT industry and make them competitive over foreign software and services, but I have not seen any such measure,” the former association president told Dhaka Tribune.

Basis had also proposed to allocate at least 10% of the budget for the internal development of all ministries and their affiliated agencies for the purchase of software and ITES, but the budget did not provide any specific guidelines to this end.

The association also suggested providing various facilities to increase women's participation in the IT sector and encourage online transactions, but these issues were not taken into consideration in the budget.

Insiders say, the proposed incentive on digital payment would have pushed the country towards the coveted cashless economy, but there is no such provision. Moreover, the mobile banking operation has been burdened with 12% VAT, they said.

Finance Minister AHM Mustafa Kamal also proposed an additional 10% supplementary duty on the import of optical fibre cables in the proposed budget for FY22-23. 

During his budget speech, the finance minister said: “We have optical fibre cable factories in the country and there is currently a 15% import duty on the product. To protect the domestic industry, I am proposing to impose another 10% supplementary duty on the import of optical fibre cable.”

Optical fibre cables are one of the main elements of the broadband internet industry. With the prices of imports going up, the cost of broadband internet will also likely witness a hike. 

While the finance minister said that the decision came in order to protect the domestic market, industry insiders said that the quality of locally produced fibre optic cables is not up to the mark. 

Industry insiders believe that the policymakers will consider the above-mentioned points and finalize the National Budget for the FY2022-2023 according to the government's mandate of creating a Digital and Smart Bangladesh.

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