Need for a predictable tax policy

A transparent, consistent and predictable tax structure is necessary not just for successful revenue generation; it is also for encouraging investment which is vital for the development of the national economy. It plays a crucial role in inviting foreign direct investment that the country now badly needs for economic growth. At the micro level, such an investment-friendly tax policy encourages individuals to run their businesses and initiate new ventures without any fear of paying unanticipated taxes.
In this highly competitive business environment both within and outside the country, initiating a business undertaking is no longer easy, as both domestic and external factors play a very dominant role. Launching of a business initiative today is a matter of formulating prudent policy taking all relevant aspects into account. An entrepreneur must be able to correctly calculate his or her re-opening expenses including net investment and operational expenditure necessary for smooth running of the business. But that is not all; he/she must also take into account the post-opening spending including payment of taxes and other charges. A predictable tax structure, among others, can enable one to make such an assessment.
The tax policy pursued by the country's revenue authority is not free from arbitrariness and unpredictable changes. The sudden imposition of VAT and taxes on over 100 products without consulting the business community testifies to this. The Federation of Bangladesh Chambers of Commerce and Industries last June termed the arbitrary measures of the National Board of Revenue (NBR) suicidal and urged the government to withdraw those immediately to avert what they called 'severe economic setback'. According to them, the VAT hike would disproportionately impact upon ordinary citizens and the increase in gas price would hinder industrial production. There are also instances on the part of the tax regulator to backtrack from commitment. The previous government had promised tax exemption for investors in private economic zones and high tech parks but, according to a report published in this paper, the 2024-25 budget removed some of the tax benefits. Such changes in policy and tax structure, which, sometimes take place unexpectedly, can only discourage investors. The interim government has also backtracked in the case of the latest hike in VAT rates on some items.
A transparent tax policy not only enables businesses to calculate business expenditure and chalk out plans accordingly. It also creates confidence among the entrepreneurs and encourages both local and foreign businesses to come up with investment. These underline the importance of framing a predictable tax policy to replace the existing one.
The country's business leaders are demanding the framing of a predictable tax structure since long, but to no avail. The current tax regime, as in the past, remains inconsistent with the overall interest of the country's economy. According to a report of this newspaper, two former NBR chairmen and some members of the advisory committee formed to initiate reforms in the NBR have recommended that the revenue authorities frame a predictable tax policy.
Bangladesh has established a large number of Economic Zones, Special Economic Zones and High Tech Parks and invited potential local and foreign investors to invest in them. But the existing tax regime is not conducive to such an objective. This is one of the reasons behind the inadequate inflow of FDI. To remove the hindrances, revenue authorities must concentrate on framing a predictable tax policy in accordance with the recommendations of the NBR reform committee and in consultation with business community leaders and other stakeholders.