Establishing economic zones: Tax-breaks, incentives lure investors
A rising number of entrepreneurs are joining the queue to establish private economic zones, tempted by the tax breaks and a host of other benefits offered by the government. Some 43 entrepreneurs have so far applied to the Bangladesh Economic Zones Authority (Beza) for licences to set up economic enclaves on their land. The Beza awarded the final licences to six and pre-qualification licences to 17.
The remaining 20 applicants are awaiting approval from the Beza governing board headed by the prime minister. The Beza list of investors, who are setting up private economic zones, include big business groups such as Meghna, City, Aman, Bashundhara, Akij, Abdul Monem, Unique, Nitol-Niloy and Kazi Farms. The incentive package, which includes tax and duty benefits, is the main reason behind the growing interest of entrepreneurs to set up private economic zones, said Paban Chowdhury, executive chairman of the Beza. “Besides, the entrepreneurs consider that they will get support from us in getting utility connections,” he added.
The Beza started its journey at the end of 2010 with a view to facilitating industrialisation for job creation, increased exports and advancement of the economy, which has been growing at upwards of 7 percent annually. The state agency came up with various incentives to lure in local and foreign investors to economic zones, which are being developed under four types of arrangements. These are: by the government itself, under public-private partnership arrangement, by private sector players, and under government-to-government contracts.
Under the package, an economic zone developer will enjoy a ten-year tax holiday, duty-free import benefit and exemption from land registration fees, stamp duty and local government taxes. And investors in the industrial enclaves will enjoy full tax holiday for the first three years of their operations.
Investors will enjoy reduced tax breaks for the remaining seven years and the benefit will be reduced by 10 percentage points every year until the tenth year. Companies setting up factories inside the economic zones will avail duty-free import of raw materials and bonded warehouse benefits to make products for both domestic and international markets. Also, firms will get 50 percent discount on land registration fee, stamp duty and local government taxes.
Investors will enjoy tax exemption on royalty and dividend payment, while their foreign employees will avail 50 percent off on income taxes. There will be no bar on repatriation of capital and profit as well as foreign exchange, the Beza said. Above all, electricity, gas and other connections will be easier to get in the economic zones, according to officials.
Factories that were in operation prior to issuance of licence for economic zones will not be able to avail the incentives, said a senior official of the Beza. The economic zones will be under the Beza, so firms will be compliant. “This will be instrumental for them to get the market for their products. This is another reason for the firms to show interest,” he added. Mohammad Abdus Samad, adviser of City Group, said easy access to utility services is one of the main reasons behind its interest in establishing economic zones. The food commodity giant has got licence for the City Economic Zone and is waiting for the licence for the City Industrial Economic Zone.
“Tax benefit is another reason,” he said, adding that the company plans to set up noodle, biscuit and edible oil plants. Aman Group has set up a cement factory, packaging unit and a shipbuilding yard in its economic zone, said Mukter Hossain Talukder, its director of finance. “We have plans to establish two feed mills, flour mill and seed crushing plant in the zone.” The group, which has operations mainly in textiles and garments, has no plan to relocate its other units to the economic zone, Talukder said. “Space is not adequate for relocation. Besides, the cost of relocation will be high. We plan to rent out,” he added. The government should give some time-bound conditions to ensure tangible results, said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh. “There should be tangible evidence for a certain percentage of land.” He said a certain portion of land should also be allocated for development of planned township to ensure all amenities for workers in the zone. “That is the industrialisation we would like to see.”
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