Withdrawing facilities for industrial establishments outside economic zones (EZ) will act as a major deterrent to investment and reduce employment opportunities. It will also negatively impact foreign exchange reserves and hinder foreign direct investment.
Bangladesh Garment Manufacturers and Exporters Association (BGMEA) expressed this concern in a letter to the finance minister, a copy of which has been obtained by The Business Post. Various trade bodies are also opposing this move.
Budget proposal
The proposed budget for the fiscal year 2024-25, which was presented on June 6 in the parliament by Finance Minister Abul Hassan Mahmood Ali, revoked tax holiday benefits for private economic zones.
Additionally, if new industrial establishments are built outside government-designated economic zones or specified industrial areas, they will not receive electricity and gas supply. New industrial establishments will also not be granted loans without clearance from the relevant electricity and gas supply authorities.
Earlier, Bangladesh Bank issued similar directives through two circulars, which have created complications for setting up new industrial establishments.
BGMEA president urges benefit restoration
BGMEA President SM Mannan (Kochi) told The Business Post that while government-established economic zones will receive tax holiday benefits, private economic zones will not, which contradicts the Bangladesh Economic Zone Act, 2010 and is unacceptable.
Stating that withdrawing tax holiday benefits will deter new industrialisation, he said, “Industrial units that have already invested but have yet to start production will now be at risk. These businesses may default on bank loans, adversely affecting the economy.”
Therefore, he urged the restoration of the withdrawn benefits.
FCCI: New policy to send wrong message
Meanwhile, the Foreign Investors' Chamber of Commerce and Industries (FICCI), also known as the Foreign Chamber, believes that the new decision taken by the government will hinder many foreign investments already in the pipeline.
FICCI said, “Policy consistency is a key prerequisite for both domestic and foreign investment. Foreign investors need consistent policies to build trust and credibility. However, the policy changes in this budget regarding investments in economic zones will send the wrong message to foreign investors.”
Bangladesh Economic Zones Authority (BEZA) Executive Chairman Sheikh Yusuf Harun said, "The budget is currently a draft. We will consider it a full budget once it is passed in parliament. We will write to the National Board of Revenue (NBR) to ensure that the previously given benefits remain the same for everyone, whether government or private."
According to BEZA's Annual Report (2022-23) published on its website, out of 97 economic zones, development work is ongoing in 29 zones. Of these, only 11 zones are operational, and the remaining EZs are not yet fully ready for industrial setup.
Sources at BEZA indicate that out of the 11 economic zones currently operational under BEZA, six have little chance of getting land allotted for the garment industry, except Bangabandhu Sheikh Mujib Shilpa Nagar (BSMSN).
BGMEA warns on economic impact
BGMEA's letter to the finance minister said that the government is taking various initiatives to attract new investments in the export-oriented garment industry and other sectors and uninterrupted gas and electricity supply is a prerequisite for setting up any new industrial establishment.
“If new entrepreneurs do not receive government support for uninterrupted electricity and gas supply, they will not be interested in setting up new industries. As a result, the country will lag in attracting new investments, fail to create new employment opportunities, and the unemployment rate will rise, stagnating the overall economic situation of the country,” the letter further read.
Foreign exchange crisis
The BGMEA's letter also stated that the country is currently facing a foreign exchange crisis, leading to an economic downturn. The government is making every effort to address this crisis by increasing exports and remittances. There is no alternative to boosting exports to overcome the foreign exchange shortage and the government earns the most foreign currency through the garment industry.
Therefore, if new investments in this or any other industry are hindered, investment will be affected and the growth rate of forex earnings will significantly decrease, making it impossible to resolve the foreign currency crisis, the letter said.
‘Govt has been misled’
It should be noted that setting up an industrial establishment involves several stages, from construction to production, which requires sufficient time. If new policies are enforced on those industrial establishments set up outside designated economic zones or government-designated areas, it will disrupt industrialisation and financially harm investors who have already invested in various necessities.
Bangladesh Private Economic Zones Investors Association President ASM Mainuddin Monem said, "The NBR will no longer keep any sector under duty-free benefits. Additionally, there is a declaration to withdraw tax holiday benefits. These decisions are not right, as foreign investment is already scarce in Bangladesh."
"I believe the government has been misled. If the government decides to provide benefits to the public sector but not to the private sector, it will create a conflict of interest," he added.
