Bangladesh Defense
Saif
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Enabling inflow of fresh FDI
For an economy struggling to stimulate private investment and generate employment, the persistent failure to attract foreign direct investment (FDI) is indeed troubling. And that is despite the generous fiscal incentives and tax holidays being offered to foreign investors. According to the latest B
Enabling inflow of fresh FDI
For an economy struggling to stimulate private investment and generate employment, the persistent failure to attract foreign direct investment (FDI) is indeed troubling. And that is despite the generous fiscal incentives and tax holidays being offered to foreign investors. According to the latest Bangladesh Bank (BB) figures, net FDI inflows during the first half of 2026 dropped by about 28 per cent to USD794 million from over USD1.1 billion in the corresponding period last year. More concerning is the fall in fresh equity capital from USD345 million to just USD156 million. Meanwhile, reinvested earnings of multinational companies (MNCs) increased markedly.
Admittedly, their retaining profits is a positive sign. But reinvestment reflected in company accounts should not be confused with new capital being brought from abroad to set up industries or expand businesses. Evidently, potential investors are taking a wait-and-see approach. So, what is holding them back? In fact, foreign investors, who have the option of choosing among competing destinations, look beyond the tax concessions on offer. They also take into cognizance the chronic shortages of gas and electricity, inadequate logistics and port facilities, rising production costs and the bureaucratic hassles involved in obtaining permissions. In addition, there are macroeconomic challenges such as high inflation, volatility in the exchange rate regime and uncertainties arising from global trade disputes and geopolitical tensions. Understandably, investors are reluctant to undertake long-term projects under such conditions. Worse still, the country's financial sector, already weakened by massive non-performing loans (NPLs), poor governance and shortages of credit for productive industries, hardly inspires confidence. The NPL ratio, reportedly, reached 33.2 per cent last June. And international credit-rating agencies' adverse assessments of Bangladesh's sovereign risk do not help matters either. Clearly, fiscal baits cannot compensate for such structural weaknesses in an economy.
However, what is particularly disconcerting is that the government is failing to make the best of the reforms it has already introduced. According to the foreign investors' chambers, as reported in last Monday's exclusive carried by this paper, NBR's field-level officials often interpret tax regulations differently or are insufficiently informed of the changes made at the policy level. The outcome is procedural complexity, uncertain assessments, delayed refunds and sometimes multiple audits of compliant companies. But the revenue authority, rather than widening the tax net, appears more inclined to squeeze additional revenue from those who already pay taxes. In this connection, the Finance Act 2026's withdrawal of the minimum tax provision and announcement of a roadmap for tax rates deserve appreciation. But the increase in turnover tax to 1.0 per cent and reintroduction of monthly VAT returns have raised fresh concerns among businesses. Worse yet, limited understanding of international accounting standards and multinational companies' enterprise resource planning systems often leads to assessments divorced from actual transactions. Can an investor plan confidently when the rules are applied so unpredictably?
In that case, the government's task is not simply to announce another package of tax holidays or hold investment promotion events. It needs to restore discipline in the banking sector, ensure dependable energy supply, upgrade infrastructure and remove layers of official approval. Equally urgent is reforming the tax administration through digitisation, automated refunds, consistent interpretation of regulations and rationalisation of sector-specific taxes. The operational circulars issued on fiscal reforms must reach the field offices and be followed in letter and spirit, not stymied by bureaucratic sloth. In a similar vein, dialogue with foreign investors and domestic businesses should help identify and settle issues before they turn into disputes. Perhaps, the experiences of those already operating here generate the most credible publicity for the country's investment climate. Therefore, until the government translates its declared investor-friendly policies into a predictable and workable business environment, generous incentives alone will not bring the much-needed fresh foreign capital.
For an economy struggling to stimulate private investment and generate employment, the persistent failure to attract foreign direct investment (FDI) is indeed troubling. And that is despite the generous fiscal incentives and tax holidays being offered to foreign investors. According to the latest Bangladesh Bank (BB) figures, net FDI inflows during the first half of 2026 dropped by about 28 per cent to USD794 million from over USD1.1 billion in the corresponding period last year. More concerning is the fall in fresh equity capital from USD345 million to just USD156 million. Meanwhile, reinvested earnings of multinational companies (MNCs) increased markedly.
Admittedly, their retaining profits is a positive sign. But reinvestment reflected in company accounts should not be confused with new capital being brought from abroad to set up industries or expand businesses. Evidently, potential investors are taking a wait-and-see approach. So, what is holding them back? In fact, foreign investors, who have the option of choosing among competing destinations, look beyond the tax concessions on offer. They also take into cognizance the chronic shortages of gas and electricity, inadequate logistics and port facilities, rising production costs and the bureaucratic hassles involved in obtaining permissions. In addition, there are macroeconomic challenges such as high inflation, volatility in the exchange rate regime and uncertainties arising from global trade disputes and geopolitical tensions. Understandably, investors are reluctant to undertake long-term projects under such conditions. Worse still, the country's financial sector, already weakened by massive non-performing loans (NPLs), poor governance and shortages of credit for productive industries, hardly inspires confidence. The NPL ratio, reportedly, reached 33.2 per cent last June. And international credit-rating agencies' adverse assessments of Bangladesh's sovereign risk do not help matters either. Clearly, fiscal baits cannot compensate for such structural weaknesses in an economy.
However, what is particularly disconcerting is that the government is failing to make the best of the reforms it has already introduced. According to the foreign investors' chambers, as reported in last Monday's exclusive carried by this paper, NBR's field-level officials often interpret tax regulations differently or are insufficiently informed of the changes made at the policy level. The outcome is procedural complexity, uncertain assessments, delayed refunds and sometimes multiple audits of compliant companies. But the revenue authority, rather than widening the tax net, appears more inclined to squeeze additional revenue from those who already pay taxes. In this connection, the Finance Act 2026's withdrawal of the minimum tax provision and announcement of a roadmap for tax rates deserve appreciation. But the increase in turnover tax to 1.0 per cent and reintroduction of monthly VAT returns have raised fresh concerns among businesses. Worse yet, limited understanding of international accounting standards and multinational companies' enterprise resource planning systems often leads to assessments divorced from actual transactions. Can an investor plan confidently when the rules are applied so unpredictably?
In that case, the government's task is not simply to announce another package of tax holidays or hold investment promotion events. It needs to restore discipline in the banking sector, ensure dependable energy supply, upgrade infrastructure and remove layers of official approval. Equally urgent is reforming the tax administration through digitisation, automated refunds, consistent interpretation of regulations and rationalisation of sector-specific taxes. The operational circulars issued on fiscal reforms must reach the field offices and be followed in letter and spirit, not stymied by bureaucratic sloth. In a similar vein, dialogue with foreign investors and domestic businesses should help identify and settle issues before they turn into disputes. Perhaps, the experiences of those already operating here generate the most credible publicity for the country's investment climate. Therefore, until the government translates its declared investor-friendly policies into a predictable and workable business environment, generous incentives alone will not bring the much-needed fresh foreign capital.
