To tax or not to tax?

Apologies Mr. Shakespeare. At times some questions need not be asked. Answer is a self-evident truth. Somehow I get the feeling Mr. Finance Minister might have not been aware of some of the logic BASIS (Bangladesh Association of Software and Information Services) have been talking about before placing of his budget in the Jatiya Sangsad.

I think I should put in a disclaimer here. While my company is a general member of BASIS, I at no time represent them nor have been selected to put forward their point of view. Though I do hope they will agree with my argument.

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This is the essence of my case. While Bangladesh government says that ICT and ITES (Information Technology Enabled Services) are thrust sectors in the country's growth engine, their actions do not hold forth this self-evident truth. In the recently announced budget, Mr. Saifur Rahman decided that it was wise to impose a 10% tax on corporate income the Software Industry while the sales of computer hardware is to enjoy tax holiday.

Now let us try to review this logic a bit. While hardware sales is basically a trading business in equipment that has been fundamentally produced overseas with hardly any value added here locally, the Software industry employs Bangladesh's most abundant resource the minds of its citizens in the design, development and coding of the lifeline of the computer. It is a high value addition industry (100%) that uses the local talent to not only earn foreign currency through exports, but also, by developing customised solution for the local business and public sectors, it contributes to import substitution. Furthermore through computerising Bangladesh Inc., it increases the productivity and response time of almost all of our economy, influencing every business in the nation. This earns and / or saves the country valuable green bucks.

If we were to examine the developing countries that are making their mark in world of IT then it is self-evident that the growth is from ITES and Software sub-sectors. India for example has made a mark for herself in this sector. Companies like Infosys, Wipro, Satayam or TCL are shaping the future of the world by playing an integral part in the design and development of software that will fuel business in days to come. And the BPO industry is putting money into the pockets of millions of Indians and igniting the spending spree that is the horsepower for India's recent growth.

Now the Finance Minister is correct in his view that Software industry has not lived up to the hype. (Mind you, this view is arguable, as according to BASIS, the growth in software export in the first six months of this fiscal year has been 122%!) But is that a justification to throw out the proverbial baby with the bath water? The reasons for the still infant software industries shortcomings are manifold. First let us understand that nature of this business. The assets of trade walk out in evening and walk back the next morning. Most of our banking friends are not willing to put their money in such a business as yet. So in most cases the industry is fully funded by the promoters. Venture Capital and Angel funding which are main source of finance for companies like ours is non-existent in Bangladesh. (Bangladesh Bank's Entrepreneur Development Fund is another case!) Secondly, education itself is a big bottleneck. We hardly have the breadth of India's engineering colleges. Every CEO in the software industry that I meet talk of the lack of adequately trained human resource. From my own experience I say the lack of infrastructure (frequent electricity failure, telecom regulations, outdated banking policies, absence of a reliable and redundant Internet backbone, et. al.) are dwarfing the potential that we have.

What is the government doing about these? How has the education syllabus changed to address the need for 10,000 plus software engineers per year and growing? What are we doing to allow changes in banking procedures to do away with L/Cs or allowing payment over the Internet? Why hasn't the Government of Bangladesh put in the level of computerisation that it has promised the industry? So Under-Sea Fibre Optic connection is landing in Cox Bazaar, but how is it coming to Dhaka? Who is distributing that? How can we get connected? How much will it cost? These are the questions to ask, Mr. Rahman.

What can we ask the usually wise minister for? Well right now it is of course that the 10% tax needs to go for both the software and the ITES sub-sectors. It is not that the entrepreneurs in this business want to rake in Lexus loads of money. But this is a long gestation business with pay-offs happening over long periods of time. The tax holiday helps attract FDI and other financing in a somewhat risky and long-term business model. Also the tax holiday means that the industry will have the resource to reinvest back into human resource training, R&D and in marketing of its product overseas.

I find it interesting that the Honourable Prime Minister herself heads the high powered ICT Task Force. Is she not being able to convince her own Finance Minister what she keeps telling us? ICT like the agro industry does two things. It uses rich local resource and it gives Bangladesh comparative cost advantage. We have the chance to find ourselves a niche in the world. Once that has been achieved it is hard for anyone to displace us, as human capital is not easy to put together, unlike garment machines.

Trust me when I say we are not making "outrageous fortunes"… as yet. But we will. Given the proper impetus and guidance the software and ITES industry will be to Bangladesh's future what garments industry has been in the past. It will be the blood of our economic prosperity. It will propel us forward economically as we will earn money for something that has come from our own minds. The question to be asked is not if there will be a tax holiday or if there won't be. But to ask how can the Government help and encourage the pioneers of our trade to ensure that along with our fledgling industry Bangladesh too can thrive. This is self-evident.

Nazim Farhan Choudhury is an entrepreneur in IT sector.