Many tech startups in Bangladesh will have to shut down if the government discontinues corporate income tax exemptions from the upcoming fiscal year, experts said yesterday.

The income tax exemption period for the software and information technology services sector is set to expire in June of this year.

If the National Board of Revenue (NBR) does not extend this exemption period, it will pose a threat to the sector’s potential development, they said.

Furthermore, it could impede the “Smart Bangladesh” vision of the government, they added.

The experts were addressing a roundtable titled “Tax policy suggestion for promoting local tech startups” organised at The Daily Star Centre in Dhaka by different associations of tech-based startups.

“…we anticipate two significant consequences: a decline in investment and a potential decrease in software export revenue, which could exacerbate pressure on the country’s dollar reserves,” said Fahim Mashroor, CEO of bdjobs.com.

“Banks and financial companies don’t typically finance IT companies in Bangladesh. This sector is developing on the back of self-investment or foreign funding,” he said.

“If the exemptions are suddenly discontinued, the investment in the sector will be stopped, slowing the growth of the sector,” he said.

Mashroor said inflated estimations of the NBR about the profits of Bangladeshi IT companies could prompt discontinuation of tax exemption, hurting the industry.

According to calculations by the NBR, the government is foregoing approximately Tk 1,477 crore in revenue annually due to tax exemptions for the ICT sector.

“That means companies in this sector are generating profits of Tk 5,000 crore annually,” Mashroor.

“But according to our estimates, more than 5,000 small entrepreneurs are collectively earning up to Tk 1,000 crore in profits annually, from which the government stands to collect a maximum of Tk 300 crore if the tax exemption is withdrawn,” he said.

“So, the collection of the NBR from the sector will be significant, but the blow to the companies would be devastating,” he said.

Snehasish Barua, partner at Snehasish Mahmud & Co, said the sector was still evolving.

“Its growth will slow down if the exemption is withdrawn, delaying the realisation of “Smart Bangladesh”, he said.

“The companies will need to maintain compliance with tax requiring huge administrative costs which can be significantly higher than actual tax liability. Tax along with tax compliance cost may result in closure of many businesses,” he added.

In spite of the exemptions, e-Generation, a leading IT company, pays different forms of tax and VAT amounting to Tk 3 crore per year while employees pay Tk 50 lakh in income tax, said its managing director, Shameem Ahsan.

“Five years ago, our tax contribution was Tk 1 crore, with employees contributing Tk 15 lakh. Our contribution has grown by 300 percent due to the tax benefits,” he said.

“Therefore, if another 5 years of exemptions continue along with a 5 percent corporate tax rate in the subsequent 5 years, we are projected to grow and contribute Tk 100 crore to the government’s exchequer,” said Ahsan, also a former president of the BASIS.

Samira Zuberi Himika, vice president of the BASIS, said associations of tech companies were willing to digitalise all processes of tax collections of the NBR for free, helping the country to collect more revenue.