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Tech start-ups fear tax break expiry could stifle growth

FE REPORT | April 25, 2024 00:00:00

The country's tech entrepreneurs have expressed concern about the sustainability of their businesses once a tax break for the IT sector expires in June this year.

The government's vision of building a 'Smart Bangladesh' could be affected if the software and technology sector suffers a setback, they argued.

The current income tax law exempts the IT-enabled sector from tax until 30 June 2024. Entrepreneurs are calling for an extension of this exemption until 2041, aligning it with the government's 'Digital Bangladesh' vision.

They said the tax break for the tech start-up sector does not cause massive revenue loss compared to the benefits it generates, especially in terms of job creation and investment.

During a roundtable discussion in the city on Wednesday, titled 'Tech Start-up: Income Tax Policy Support', some 20 start-up businesses sought continued government support through tax incentives.

Tax experts and leaders of the Bangladesh Association of Software and Information Services (BASIS) also supported the demand.

The entrepreneurs said neighbouring countries offer similar tax breaks to attract investment in tech start-ups.

They warned that if Bangladesh withdraws its tax exemptions, it could lead to a loss of the $1 billion in investment attracted over the past five years.

Besides, software developers may be discouraged from repatriating their export earnings, mounting pressure on the country's foreign exchange reserves.

Fahim Masroor, former president of BASIS and moderator of the roundtable, challenged the revenue board's estimated tax loss of Tk 14.70 billion due to the tax exemption for the IT-enabled services (IETS) sector. He labelled the estimate "unrealistic".

According to Mr Masroor, the revenue board claims tech companies are making Tk 50 billion in profit annually, while he believes the actual profit margin is closer to Tk 10 billion, which would translate to around Tk 3 billion in annual tax revenue.

He urged the government to conduct a company-level survey to determine the sector's true profitability.

Shamim Ahsan, another former president of BASIS, acknowledged the government's recent policy support for the tech sector but argued that it is too early to scrap the tax benefits.

"We don't expect tax exemption for an unlimited period, but this is not the right time to scrap the tax benefit. Additional revenue generated by ending the exemption would be lower than the tax losses in the next five to ten years," he projected.

He also warned that entrepreneurs might leave the country and invest elsewhere, impacting job creation.

Zuberi Himika, senior vice president of BASIS, suggested that the government could collaborate with local tech entrepreneurs to develop automated and simplified tax collection systems.

Shawkat Hossain, director of the Venture Capital Association, and Sayeed Ahamed, chief of the Institute of Informatics and Development (IID), spoke at the programme. Tax expert Snehasish Barua presented the keynote paper.

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