Extending tax holiday

A change, albeit of a modest nature, in policy stance of the government on tax holiday facility has been indicated by Finance Minister AMA Muhith at this week's consultative meeting, organised jointly by the National Board of Revenue (NBR) and the Federation of the Bangladesh Chambers of Commerce and Industry (FBCCI). He indicated there that the government was likely to extend the facility by another year, until 2013. In his budget speech that was delivered on June 11, 2009, he had announced about not continuing the tax holiday facility beyond 2012 since such a facility 'distorted' the very culture of tax compliance. In July 2009, the government had taken out 51 productive sectors from the list of industries eligible for tax holiday facility, subjecting them to payment of reduced rates of tax, ranging between 5.0 per cent in the first year and 15 per cent in the fifth year. And the newly established industries in less developed areas were made entitled to higher tax discount rates. These rates were then made effective for the period until June 30, 2012 for industries under those 51 sectors. However, newly established industries under 18 sectors, including textile, jute, pharmaceutical and melamine, were allowed to enjoy the tax facility until 2012. While stating the other day that the tax holiday facility would be extended for another year, the Finance Minister also hinted at some possible downsizing of the number of the beneficiary sectors. The private sector trade promotion bodies in the country have strongly been in favour of this tax holiday facility that has been in operation for nearly three and a half decades, for what they have been terming it, as a prop for facilitating the process of industrialisation. The offering of such a facility is nothing unique in the case of many least developed - and also developing - countries like Bangladesh with a view to strengthening their industrial base. However, it must also be noted that it costs the governments a substantial amount of revenue every year. In the case with Bangladesh, it is estimated that the lost revenues because of continuation of this facility since its introduction, amounted to more than Taka 200 billion. Meanwhile, allegations are also galore about the gross abuse of this facility by a section of unscrupulous businesses in the country. This has earlier given rise to some strong opposition to the continuation of the facility. There were a good number of industries which, while enjoying the facility, had reported annual profits. But they, once out of the facility, started reporting 'loss' allegedly through cooked-up audit reports just to avoid payment of tax to the government. Whenever the National Board of Revenue (NBR) challenged their financial reports and imposed taxes on them, these units went to courts and managed to obtain stay orders. Thus, the very purpose of helping the newly set-up industries to be have a strong base through the tax holiday facility has largely been defeated by a section of unscrupulous businesses. So far as good. There is also no denying that the tax system of Bangladesh is highly exemption-ridden and a large part of the economy still has remained outside the tax net. The country can ill-afford such exemptions and poor tax coverage, particularly when the government requires resources in large volume to meet the developmental needs and its ever-increasing recurring expenditures. So, side by side with the efforts to expand the tax coverage, the government will have to be really serious about ensuring transparency, accountability and efficiency in the revenue administration which, unfortunately, does not have an unblemished image. In this context, there is a strong need for putting in place a built-in mechanism so that the holes that pave the way for abuse of the tax-holiday facility, if it is renewed afresh, are plugged in. That will reinforce the logic for a fresh extension of the period of this tax holiday facility.