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Bangladesh needs improved business climate – especially a reform of unfavourable tax policy, adoption of modern technology and increase in productivity – to increase Foreign Direct Investment (FDI) and tax-to-GDP ratio.
Former Bangladesh Bank governor Atiur Rahman made the remark at a programme on Wednesday, saying, “The inadequate trade logistics and infrastructure, complex investment policy and business regulations, low productivity, lack of depth in the financial sector, and unfavourable tax environment are key factors hindering FDI in Bangladesh.”
He presented a keynote at the event titled “Towards a Trillion Dollar Economy of Bangladesh Opportunities and Challenges,” organised by the Foreign Investors' Chamber of Commerce and Industry (FICCI) in the capital, read a press release.
Atiur also recommended making the independent director as the chairman of the board of directors to ensure good governance in private banks.
He pointed out, “While Bangladesh’s GDP growth has remained commendable, net FDI inflows shows a declining trend. Between 2010 and 2022, Bangladesh’s average FDI inflows stand to be 0.9 per cent as per cent of GDP.
“In the same time India and Vietnam were to be 1.7 per cent and 4.6 per cent respectively.”
Bangladesh requires more FDIs to stabilise foreign exchange rate right now which would help to decline inflation in the country.
He added, “So, we must strengthen financial sector governance and bolster overall business confidence. FDI inflows need to be bolstered to realise Bangladesh’s macroeconomic potentials, particularly to stabilise its financial balance.
“The current tax system trends to favour specific sectors, which hinders fairness and efficiency.”
The country faces lack of digitalisation and modernisation in tax process, retrospective application of policies and unpredictability, different ID number for same business, lengthy process of incentives, limited number of transfer pricing experts, absence of double tax avoidance agreement, reliance on paper-based return and in-person appeal filling processes add to complexities, according to the keynote.
He added, “Bangladesh requires more FDIs to stabilise foreign exchange rate right now which would help to decline inflation in the country. So, we must strengthen financial sector governance and bolster overall business confidence.
“A 33 per cent tax reduction and effective tax reforms will increase both FDI and tax revenue significantly. In this model, FDI could increase from $3.14 billion in 2022 to $51.4 billion in 2041 and tax revenue could increase from $34.44 billion in 2022 to $227.21 billion in 2041.”
He said, “No alternative to bolstering FDI inflow. Increased inflow of FDI will also improve revenue mobilization, while Bangladesh’s tax-GDP ratio is hovering below 10 per cent. A 1 per cent rise in FDI inflow corresponds to a 1.5 per cent point increase in overall tax revenue for developing economics.”
Atiur, who is also an emeritus professor of Dhaka University, said, “As stabilising foreign exchange rate is important to reduce inflation, Bangladesh must ensure ‘smart economic diplomacy’ to promote Bangladesh as an attractive investment destination.
“The corruption is hindrance to economic growth of the country. Good governance must be ensured, and suggested the new government must take initiative to reduce loan defaults, make favourable policies to ensure ‘ease of doing businesses.”
He then said, “Tomorrow’s Bangladesh will be digital, so the country must develop digital infrastructure, prioritise human capital development through stronger private sector participation with the academia and other training providers.
“And secure more ‘climate finance’ from international development partners focusing on green technology and renewable energy.”
FICCI President Zaved Akhtar, 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 did not try when the opportunities arise in our country.”
