With more allocation, IT sector needs heightened policy support

The proposed budget for FY23 - placed by Finance Minister AHM Mustafa Kamal in Parliament on Thursday - shows the government’s firm determination to boost the country’s IT sector despite bottlenecks and limitations.

Though the government is facing serious challenges such as the rising inflation and skyrocketing commodity prices, allocation to the IT sector has gone up by 16.69 per cent or Tk 274 crore, when compared to the revised budget for outgoing FY22.

However, the Bangladesh Association of Software and Information Services (BASIS) states that the proposed budget for FY23 does not reflect as expected the true need for the development of the country’s software and IT-enabled services (ITES) sector.

A report published in this daily on Sunday quoted BASIS Vice President (Admin) Abu Daud Khan saying that the budget did not make it clear which projects or sectors would the allocation money go to, and how it would benefit the industry and its entrepreneurs.

Adding that only a few of BASIS’ 18 pre-budget demands were taken into account in the proposed budget, the trade body leaders said they had called for extending the tax exemption from 2024 to 2030 to boost foreign investment, but their pleas were ignored. The software and ITES industry is now subject to a 5 per cent withholding value-added tax at business level. BASIS had also proposed to allocate at least 10 per cent of the budget for internal development of all ministries and affiliated agencies, but the budget for FY23 does not have anything specific regarding this initiative. Besides, this budget did not address the need for new Harmonized System Codes for cyber security software, and a tariff rate for importing such software.

BASIS had proposed to create a Tk 300 crore fund to provide loans at 2 per cent interest to increase employment of women in this sector, and sought a government incentive of 10 per cent on the monthly salaries of women employees at software and IT firms, generating more jobs. 

But the budget has no pointers on these issues. It also did not consider a BASIS proposal to allocate Tk 500 crore for the Technical Assistance Project and provide cash incentives to both buyers and merchants at the rates of 3 per cent and 2 per cent, respectively.

Although the government declared ICT products and services as National Product of the Year 2022, and plans to build a Smart Bangladesh by 2041 with emphasis on the IT sector, the budget lacks any specific plan to increase private sector participation .

Moreover, the budget did not say anything regarding a Tk 2,000 crore stimulus package - against a 5 per cent subsidised interest rate - BASIS specifically sought for this sector, to compensate for the loss software and IT firms incurred during the Covid-19 pandemic.

The government’s motto “Digital Bangladesh” has unique importance for national growth, and the ongoing digitalisation of services has been a major push for the country’s usage of digital technologies.

Bangladesh has identified ICT as a “thrust sector” as it represents potential for successful reforms, job creation, industry growth and high spillover effects to other sectors as well as improving governance and facilitating inclusion. World Bank’s Country Assistance Strategy for Bangladesh also recognises the key role of ICT in supporting the country’s growth, competitiveness and governance agenda.

The IT and IT-enabled services industry presents an attractive segment worth $475 billion globally. The ICT sector in Bangladesh, especially software and ITES industries, is relatively small compared to the size of the national economy. However, the software and ITES industries in this country have started rapidly growing in recent years. 

This sector has maintained 57.21 per cent export growth on an average over the last nine years since 2009.  In FY17, Bangladesh ICT sector registered export earnings worth $0.8 billion from the global market and $1.54 billion from the domestic market span, thereby making around one per cent contribution to the GDP. Bangladesh’s IT and IT-enabled services industry has already shown a vast capacity to become one of the largest earners of export revenue in the coming years, and the government should take necessary steps outlined by BASIS to help this promising sector reach its true potential.