According to revenue officials in Bangladesh, a tax holiday scheme designed to encourage diversified and balanced industrial growth in the country has failed, and has merely served to encourage massive tax evasion.
The scheme, which has been in operation since the late 1980s when the government first started to encourage private sector investment, relieves industries in certain areas of 35% tax for five to twelve years, and was created with the intention of stimulating an equal industrial growth in both the developed and under-developed areas of Bangladesh. Section 45 of the Income Tax Ordinance (1984) divided the country into four zones, with those in the Special Economic Zone and the least developed parts of the country receiving longer exemptions than businesses in developed areas.
However, officials from the National Board of Revenue (NBR) recently revealed that over 65% of industries still base their operations in the metropolises and surrounding areas, and that companies based in the less attractive (but tax privileged) areas are usually diverted units of companies from the developed areas. 'The tax holiday has created tax heaven for the tax-dodgers,' observed one official resignedly.
Research shows that many of the units established in economically backward sectors show profits during the holiday period, and become markedly less profitable after it expires, leaving the owners to close them down and begin afresh under different names in order to take advantage of the tax amnesty again.
The tax holiday scheme has been extended several times already, the last being in June 2000, when the government extended it for a further five years following demands from trade groups. However, the NBR now feels that enough is enough, and officials believe that the scheme should not be extended again, advising instead that the scope of accelerated depreciation should be broadened to check rising tax evasion in Bangladesh.
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