Bangladesh offers significant tax holiday incentives to encourage industrial growth and attract investment in key sectors. These provisions, outlined within the nation’s tax regulations, aim to stimulate economic development by providing considerable tax relief to qualifying businesses. This article details the eligible industries, the conditions for availing these benefits, and how they vary based on geographical location.
Eligible Industries for Tax Holiday#
To qualify for a tax holiday, a company must be engaged in specific industrial activities. The government has identified a diverse range of sectors to promote economic diversification and technological advancement. These eligible industries include, but are not limited to:
- Active pharmaceutical ingredients and radio pharmaceuticals
- Agricultural machinery
- Automation
- Automobiles
- Artificial fiber manufacturing
- Artificial intelligence-based system design and manufacturing
- Automobile parts and components manufacturing
- Automation and robotics design, manufacturing, including its parts and components
- Aircraft heavy maintenance service, including spare parts manufacturing
- Basic components of electronics (e.g., resistors, capacitors, transistors, integrated circuits, printed circuit boards)
- Battery and its spare parts
- Bio-fertiliser
- Bio-technology based agricultural products/agro product
- Boilers and its spare parts and equipment
- Compressor and its spare parts
- Computer hardware
- Furniture
- Fish processing and preservation
- Home appliances (e.g., blender, rice cooker, microwave oven, electric oven, washing machine, induction cooker, water filter)
- Insecticides and pesticides
- Leather and leather goods
- LPG cylinder
- Locally produced fruits and vegetables processing
- Mobile phone
- Nanotechnology-based product manufacturing
- Petrochemicals
- Pharmaceuticals
- Plastic recycling
- Textile machinery
- Tissue grafting
- Toys manufacturing
- Transformer manufacturing
- Tissue grafting, development of bio-physics and development of radio active (diffusion) application etc. (i.e., polymer modification or polymer processing or fiber modification or medical equipment sterilisation)
- Any other sector or industrial enterprise or entity performing any other work, as specified by the National Board of Revenue (NBR), through government gazette notification
Conditions to Avail Tax Holiday#
To be eligible for these tax incentives, businesses must meet certain criteria:
- Location: The approved industrial undertaking must be located in Bangladesh .
- Commencement of Production: The entity must commence commercial production between July 2020 and June 2025 .
Tax Exemption Benefits and Location-Specific Conditions#
Income earned directly from the specified eligible industrial activities qualifies for tax exemption . It is important to note that income derived from any other sources, not directly related to these core activities, will not be eligible for this tax exemption .
The availability and extent of the tax holiday are significantly influenced by the geographical location of the industrial undertaking.
Exclusion Zones for Tax Exemption#
Certain areas are explicitly excluded from the tax holiday benefits, even if the industry is eligible. Income from the aforementioned industrial activities is not eligible for tax exemption if the approved entity is located in:
- Any city corporation area
- District headquarter municipalities
- The hill districts of Rangamati, Bandarban, and Khagrachari
Location-Based Tax Exemption Rates and Durations#
The rates and duration of the tax exemption vary depending on the specific location of the approved entity within Bangladesh:
1. Industries in Dhaka or Chittagong Divisions (excluding specified areas)#
If an approved entity is located in any district within the Dhaka or Chittagong divisions (but excluding city corporation areas and the hill districts of Rangamati, Bandarban, and Khagrachari), it is entitled to tax exemption for a period of 10 years from the month of commencement of commercial production, at the following rates:
- First and Second Year: 90% tax exemption
- Third and Fourth Year: 75% tax exemption
- Fifth, Sixth, and Seventh Year: 50% tax exemption
- Eighth, Ninth, and Tenth Year: 25% tax exemption
2. Industries in Dhaka or Chittagong Divisions (alternative scheme, excluding specified areas)#
Alternatively, if an approved entity is located in the Dhaka or Chittagong divisions (again, excluding city corporation areas), it may be entitled to tax exemption for a period of 5 years from the month of commencement of commercial production, at the following rates:
- First Year: 90% tax exemption
- Second Year: 80% tax exemption
- Third Year: 60% tax exemption
- Fourth Year: 40% tax exemption
- Fifth Year: 20% tax exemption
Tax Exemptions for IT and IT-Enabled Services (Until June 2027)#
In addition to the general industrial tax holidays, the government of Bangladesh also provides specific tax exemptions for businesses engaged in Information Technology (IT) and IT-Enabled Services (ITES). These exemptions are typically aimed at fostering the growth of the digital economy. Businesses in the following categories may be eligible for tax exemption on their income derived from these services up to June 30, 2027, subject to specific conditions and notifications by the National Board of Revenue (NBR):
- AI-based solution development
- Blockchain-based solution development
- Robotics process outsourcing
- Software as a service (SaaS)
- Cyber security service
- Digital data analytics and application
- Development service
- Mobile Application Development Service
- Software Development and Customisation
- Software Test Lab Service
- Web listing, website development, and service
- IT assistance and software maintenance service
- Geographic information service
- Digital Animation development
- Digital graphics design
- Digital Data Entry and Processing
- E-learning platform and e-publication
- IT Freelancing
- Call Center Services
- Document conversion, imaging, and digital archiving
It is crucial for businesses in these sectors to verify the current applicability and specific requirements for these exemptions with the NBR or a qualified tax advisor, as regulations can be updated.
Strategic Importance of Tax Holidays#
These tax holiday provisions are a cornerstone of Bangladesh’s strategy to attract significant investment into targeted industrial sectors. By offering these incentives, the government aims to foster industrial diversification, promote regional development by encouraging businesses to establish operations outside major urban centres, and ultimately contribute to the overall economic growth and prosperity of the nation.
For detailed advice on tax holiday eligibility and applications for your specific industrial undertaking in Bangladesh, please contact:
- Ariful Hasan
- Phone: +8801975603559
- Email: [email protected]