The existing tax holiday facility is inadequate to attract investments and generate employment optimally, speakers said Sunday.
They said restrictions on the sector selection, complex procedures and mistrust between policy makers and investors are the major reasons behind this.
Non-traditional sectors such as leather, plastic, and light engineering are not availing this facility yet.
The concerns came at a pre-budget dialogue on 'Revisiting tax holiday policy of Bangladesh for supporting new export sectors,' organised jointly by Bangladesh Investment Development Authority (BIDA) and Business Initiative Leading Development (BUILD) in Dhaka.
At the programme, BUILD chief executive officer (CEO) Ferdous Ara Begum presented a study on the tax holiday facility.
BIDA executive chairman Kazi M Aminul Islam was the chief guest at the programme.
Former president of the Dhaka Chamber of Commerce and Industry (DCCI) Abul Kasem Khan was the session chair.
Former DCCI senior vice president Humayun Rashid delivered an introductory speech.
According to the BUILD study, over 400 industries from 22 industrial sectors availed the tax holiday facility until fiscal year 2017-18. The facility was introduced back in FY 1973.
Since 2016-17, no new industrial sector has been included in the scheme, though the facility for the majority of the industries is scheduled to expire this fiscal, the study said.
"Until a new announcement in the Finance Act-2019, the companies that are enjoying the facility are suffering from uncertainty whether this will be extended or not," said Ms Begum.
The newly-established industries are keen to see the extension of this facility, she said.
The study said industries that availed the facility have generated 29,100 jobs since FY1973-75.
The facility accounts for an insignificant amount, about 0.13 per cent, of losses in taxes out of its total revenue collected in FY 16, it added.
She said sectoral potentials and the maturity would need to be analysed in detail before announcing the next tax holiday schedule.
The decentralisation of the industries outside Dhaka and Chattogram should be encouraged through the facility, she added.
"Geographical dispersion of industrialisation has not happen over the last four decades. Most of the enterprises availing the facility are based in Dhaka and Chattogram," she said quoting the study.
The study also quoted the best tax holiday practice in Thailand, Indonesia, Pakistan, Sri Lanka, the Philippines, Vietnam and India.
The BIDA executive chief said the existing tax incentives for investors are not 'good enough' to attract investments, which needs to be revisited.
"The facility should undergo continuous monitoring and evaluation," he said.
Mr Islam underscored the need for removing policy uncertainty as investors make plan on the basis of information.
He also stressed the need for creating a trustworthy environment, improving relationships between taxmen and businesses while strengthening capacity of the NBR.
Abul Kasem Khan said sector-specific tax holiday should be offered to attract investment and generate employment.
"Tax break is needed in the period of transition and transformation," he said.
He said tax holiday facility should be continued as it has cascading effects on some other sectors
He laid emphasis on stakeholders' consultation on the tax holiday facility.
Humayun Kabir said that the government should set the priority for providing the benefits.
It will not bring any results if the benefits are given on an ad-hoc basis having influenced by an individual.
Former income tax policy member of NBR Syed Aminul Karim said a cost-benefit analysis is required to find out the impact on investment and employment generation of the scheme.
The study has put forward a set of recommendations, including tax exemptions from the profit making phase (after breakeven) instead of from the date of commercial production, automation of the tax holiday certificate renewal application, and a flat rate of income tax for a certain period for all industrial undertakings located outside the cities.
Responding to the recommendations, NBR member Kanon Kumar Roy said many of the factors are related to the investment promotion beyond this facility.
"We should come from the tax exemption culture considering the necessity of the internal revenue mobilisation," he said.
He said it is too late to place such pre-budget proposals for the upcoming fiscal.
The National Board of Revenue (NBR) member (income tax policy) Kanon Kumar Roy and Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) taxation working committee convener Mohammad Humayun Kabir also spoke at the programme.
