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Budget discriinmates against non-resident Bangladeshis

By Z Ahmed
This year's budget has been quite liberal in making sweeping reduction in customs and other duties. However, it was noted that while most Bangladeshis got some relief in one form or another, the concerns of the non-xesi-dent Bangladeshis (NRBs) have been completely ignored. Nowhere in the budget speech did the Finance Minister mention the importance of the NRBs in generating investment in Bangladesh. It has been reported in private circles that the Finance Minister often complained at the poor response from the overseas Bangladeshis i. e , non-resident Bangladeshis (NRBs) to invest in Bangladesh. But has he looked at his income tax structure for these NRBs? Currently, taxable income of NRBs is taxed at a flat rate of 25 per cent,which is the highest tax rate in Bangladesh for individual income. No ex emptions or investment credits are available to NRBs as are available to to residents. Compared to this the average income tax rate for individuals in the US is 15 per cent (although the highest marginal tax rate i? 39.6 per cent for
taxable income over 250,000 dollars). As in Bangladesh, the individual tax rates are graduated upwards so that after the allowable deductions and exemptions the absolute net tax burden is much below that implied by the tax rate. So why would an individual NRB residing, say, in the US invest his savings in Bangladesh and pay a flat tax rate of 25 per cent on his income generated from that investment. This flat tax rate provides very little incentive to the NRBs to invest in Bangladesh compared to investing in a comparable investment in the US (or UK as the case may be).
It is. needless to state that successful expatriate nationals can be a valuable source of investments. India has taken advantage of this source by tapping the non resident Indians (NRIs). It is reported that formal investment by NRIs has totalled approximately 72 billion Indian rupees (approximately 2.2 billion US dollars) since its liberalisation programme began four years ago. The success of India is also now being followed by other SAARC countries to woo their expatriate nationals
to invest in the motherland.
Bangladesh has a large number of Successful NRBs who can be an important source of foreign direct in' vestment (FDI) in Bangladesh. But, why would they invest here when they are discriminated against? It has.been identified in different fora that in order for Bangladesh to attract (FDIk one of the first steps should be to encourage NRBs to invest in Bangladesh. NRBs have the necessary capital and exposure to foreign markets and technology which can compliment the initiatives of local businesses . in forming joint ventures.
This will generate the initial momentum and lead the way for foreigners to invest in Bangladesh as has happened in countries like Thailand, Malaysia. Indonesia and lately, India. It may be men tioned that the recent in vestment boom in China has been first led by investment by the overseas Chinese (and Taiwanese) when China opened its doors to foreign investors.
While incentives for for eign corporate investment in Bangladesh are quite compet
itive compared to neighbouring countries, the same is not true in case of incentives for individual NRBs. Incentivts such as tax holidays, duty free import of capital goods, etc apply mainly to corporations and are the same for any corporate investor foreign or domestic. There is nothing encouraging for the individual NRB investors. However, in the case of Bangladesh, the potential for individual NRBs to invest is far greater than as NRB-owned foreign corporations. Mainly because there are not as many NRB-owned successful large foreign corporations as there are successful individual NRBs. For individual NRB investors, net income (after taxes) is a very important motivating factor. Unless this net income is higher in Bangladesh than in their country of residence then the NRB has no incentive to invest in Bangladesh. So tax incentives focussed at the individual NRBs would be very effective to attract FDI Therefore, the' income tax rate for NRBs should be re duced from its current level of flat 25 per cent. It may be ar gued that the beneficial im-
pact would be tremendous if the tax rate is reduced to nil initially and then raised to 10 per cent after a period of about five years, when _in-vestment picks up and starts generating income. Initially, these investments would not be generating any direct income until after the gestation period, so there will not be any loss whatsoever by eliminating the income tax on in dividual NRBs.
Areas of Likely Investment:
Individual NRBs would most likely invest in:
Shares in a company either as direct sponsors or as port folk) investors,
Housing/Flats. In all modern economies, hbusing con struction is considered a "bell weather" activity which has great impact on their econo mies. Investment in multi unit housing (greater than two storeys) either wholly or as a unit/tlat in a housing society by NRBs would ease the hou sing crunch as well as venerate other investments and growth in related sub sectors, viz , sanitary wares, electric wares cables, hardware, etc This in vestment would also b« moat favoured by individual NRB*
since many look upon build ing a retirement asset in theii mother country. Since NRBs will rent out these properties this will greatly reduce the housing shortage. In addition, new service institutions will ' develop to manage the prop cities on behalf or the absentee landlords creating further employment.
The Finance Minister talked about all kinds of fiscal incentives to corporate investors in Bangladesh and all "kinds of appeals for FDI by foreigners. But I am surprised he has not said a single word to encourage the millions of individual NRBs who can be a great source of FDI in Bangladesh Nonetheless the recent planned trip by the business community led bv FBCCI to solicir explicitly the NRBs to invest in Bangladesh is rightly directed Perhaps this trip could have been more attractive to the NRBs if the FB( TT leaders could carry.