Taxation and FDI

BANGLADESH needs FDI for accelerated growth. But one of the main reasons why the investors are shying away is the high rate of corporate tax in Bangladesh. In fact, investors look for lower cost of production and a lower corporate tax. Other taxes such as energy taxes and pay-roll taxes are also important.
Raising revenue with an efficient administration is broadly accepted. But there may be tax incentives which would include reduced tax rates on profits, tax holidays, reduced tariffs on imported equipment or increased tariffs to protect the domestic market for import substituting investment.  
Examples of China and India may be cited. China allows firms with foreign investment a tax refund of 40 per cent of profit subject to a condition that the profit must be reinvested for at least five years; otherwise the firm has to pay taxes. Similarly India introduced a tax exemption on profits of firms engaged in tourism or travel, provided their earnings are received in convertible foreign currency.
The Bangladesh government should lower taxes to attract capital investment which will ensure creation of job opportunities and attract human capital. FDI is viewed as a major stimulus to economic growth in developing countries as it brings prosperity to the receiving countries through technology transfer, increased volume of exports, enhanced job opportunities and higher government revenue. The government should take necessary steps accordingly to attract FDI in the country.
Mahadi Hassan
East West University, Dhaka
[email protected]