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Dhaka Tribune

Ficci: A 20% corporate tax cut may lead to 14-fold hike in FDI

Foreign investors in Bangladesh said the reduction of the corporate tax in the country will play a role in increasing investment

Update : 20 Nov 2023, 06:49 PM

A 20% reduction in corporate tax has the potential to attract 14 times more foreign direct investment (FDI) to Bangladesh.

The observation was shared in a study report at an event organized to celebrate 60 years of the Foreign Investors' Chamber of Commerce and Industry (Ficci).

The FICCI report, "Catalyzing Greater FDI for Vision 2041: Priorities for Building a Conducive Tax System in Bangladesh", was handed over to Prime Minister Sheikh Hasina at the program.

Foreign investors in Bangladesh said the reduction of the corporate tax in the country will play a role in increasing investment, and this will not lead to a decrease in revenue but rather an increase.

They explained that reduced tariff rates mean lower import costs for foreign investors who want to bring in raw materials or components for their production processes.

This cost reduction enhances the attractiveness of investing in the country and paves the way for expanded market access for foreign companies, they said.

According to the report, if the current tax rate is reduced from 20% to an average of 24% by 2030, FDI can increase by 14 times in 2041.

The report indicates that if the tax rate is increased by 20% over the next 10 years compared to the present, then GDP may only increase by less than 6 times, and revenue collection may increase by less than 3 times.

Similarly, the report also shows how an investment-friendly tax environment is helpful in increasing FDI and revenue.

In Bangladesh, the current corporate tax rates range from 20% to 45%.

In the last three national budgets, the non-listed companies' tax rate in the stock market has been reduced by 2.5 percentage points.

Taxation policies including corporate income tax rates, tax incentives and exemptions have a profound impact on foreign investors' decisions to invest in a particular country, the Ficci report also mentioned.

It further stated that while low tax rates may attract foreign businesses by enhancing after-tax profitability, tax incentives can further incentivize FDI inflows into specific sectors or regions.

When high tax rates and complex tax systems may discourage FDI, it may potentially lead investors to seek more favourable jurisdictions. However, the relationship between taxation and FDI is multifaceted, extending beyond mere tax rates, the report also said.

"To attract foreign investments, countries should adopt a holistic approach, addressing not only tax policies but also factors like political stability, infrastructure and market potential."

Apart from the tax rate, there are other obstacles in attracting local and FDI in Bangladesh, the report added.

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