A 33pc tax cut, effective reforms can boost FDI, revenue

A 33-percent reduction in taxes and effective tax reforms will increase both FDI and revenue significantly, an economist said Wednesday at a business meet that showed ways of Bangladesh's higher economic growth.

Dr Atiur Rahman, Emeritus Professor of the University of Dhaka and former Governor of Bangladesh Bank, also made a strong plea for across-the-board withdrawal of VAT from small and medium enterprises as a growth propeller and job creator.

The country's economy could reach trillion-dollar mark by 2030 if the growth attains double-digit rate, he said at the function organised by the Foreign Investors Chamber of Commerce and Industry (FICCI).

For that to happen, he said, Bangladesh needs multi-pronged approach, including attracting FDI, easing doing business, reform in policies to set the economy right and create opportunities.

"With a modest 5.0-percent growth rate Bangladesh economy will touch the trillion-dollar mark by 2040, but it can do so even faster by 2030 if a double-digit growth rate can be ensured," he said on an optimistic note while delivering a keynote speech on 'Towards a Trillion Dollar Economy of Bangladesh: Opportunities and Challenges'.

The FICCI organised the first monthly luncheon meeting of the year to periodically engage leaders on Bangladesh's investment-, trade-and commerce- related possibilities and opportunities at a hotel in Dhaka.

FICCI President Zaved Akhtar in his welcome speech said, "Bangladesh has huge economic headwinds, but we will not go far by worrying about them rather we should be concerned more about the chances we miss when we didn't try when the opportunities arise in our country."

FICCI luncheons are designed to look at those economic and business opportunities so that the businesses put their best foot forward to set the country back onto the right economic trajectory.

"I would like to thank Dr Atiur Rahman for his inspiring and thought-proving talk, as us, the business community, need to lean on thought leaders like him for guidance and learn to weather the headwinds and find new opportunities for growth," he added.

For paving the way for growth boost, the former governor of the central bank suggests that the government should address issues like stabilising exchange rate, containing inflation, promoting export diversification, bolstering remittance, strengthening financial-sector governance, bolstering overall business confidence and deepening and ensuring consistency on the capital market.

He also urges the government to prioritise human-capital development through stronger private-sector partnership with the academia and other training providers.

Bangladesh's success should be attributed to its multidimensional approach to sustainable development, he says, and lists more growth triggers.

Manufacturing sector is mostly led by readymade garments, but other growing export-led industries, remittance, agriculture, inclusive financing, women empowerment and 100-percent electricity coverage improving the quality of life as well as business environment are also key drivers of the economy, he mentions.

On the downside of the economy Dr Atiur Rahman points out inadequate trade logistics and infrastructure, complex investment policy and business regulations, low productivity, lack of depth in the financial sector and unfavorable tax environment as hindrances to foreign direct investment (FDI) in Bangladesh.

He observed that infrastructural development (IT parks, SEZs and megaprojects) and enhanced connectivity created new scopes for investment and employment, yet potent backward and forward linkages are required for realising the full potential.

"FDI could increase from USD3.14 billion in 2022 to USD51.40 billion in 2041 which ultimately would be 2.2 per cent of GDP," he told the business meet about the imperative for tax cuts and tax reforms. And tax revenue also could increase from USD34.44 billion in 2022 to USD227.21 billion in 2041.

As holistic approach to improving investment climate Dr Atiur emphasised favorable policies to ensure 'ease of doing businesses', investment in human capital in the context of 4IR, commitment to innovation and technology and more commitment for climate-friendly investment.

He said with a 25-percent share in the GDP and having 30 per cent of the employed workforce MSMEs of Bangladesh hold enormous potential as job creators. "Yet MSMEs face structural bottlenecks such as access to finance, infrastructural barriers, undue VAT and AIT and technological shortcomings."

He urges the government to withdraw all kinds of VAT from MSMEs.

The former governor of the Bangladesh Bank mentions that Bangladesh is to graduate to the 'developing country' status by 2026 for its significant achievements in terms of GNI per capita, Human Assets Index (HAI), and Economic Vulnerability Index (EVI). But there is a risk of losing 7 per cent to 14 per cent of exports due to loss of most-favoured nation (MFN) and duty-free, quota-free (DFQF) access."

In his view, the country must look for new set of International Support Measures (ISMs) during the transition period. The support measures must address the issues including interest rates, grace periods for the loans from development partners.

For addressing structural challenges he suggests streamlining bureaucratic hurdles, curbing corruption, ensuring 'smart economic diplomacy' to promote Bangladesh as an attractive investment destination and securing more 'climate finance' from international development partners.

He rings alarm that Bangladesh is vulnerable to both disasters and climate change and ranked as the seventh extreme disaster risk-prone country in the world according to the Global Climate Risk Index 2021.

"In terms of economic losses, Bangladesh is ranked in the fifth position, indicating the economy at risk from climate catastrophes, impacting human health, economy, agriculture and ecosystem," he said, mentioning enormous potential for climate-adaptive development.

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