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COLLABORATIVE INNOVATION TO ADVANCE BANGLADESH

This is the month of June, and June always carries a special significance from national perspective as it is the “budget month”. Budget of Bangladesh government for the next fiscal year gets formulated and approved in every June. So at this time high scale of discussion, review, debates etc take place in various sectors of the country regarding budget.

In this year’s pre-budget review, corporate tax rate has been a major topic of discussion. Particularly, existing tax rates in the country for the following corporate segments have been pointed out:

Banking companies, insurance companies and non-banking financial institutions are taxed at 40 percent if they are listed and 42.5 percent if non-listed.

Cigarette manufacturers and mobile phone operator are taxed at 40 percent if they are listed and 45 percent if they are not listed.

There have been continuous concerns from relevant corporate segments regarding this high tax rate, which as per some analysis may not be entirely beneficial for business growth. It also has been pointed out that this rate is quite higher than the corporate tax rate of other countries specially neighboring ones like India (30%-40%), Sri Lanka (15%-42%), Malaysia (24%-30%). On the other hand, tax authority (National Board of Revenue) is concerned about significant impact on government revenue if corporate tax rate gets reduced.

However, one possible option do exist in this regard which way may serve the interest of both ends. To tell in one word- it is encouraging tax-free corporate investment in educational (particularly research & development) sector. Let us elaborate bit more.

In many countries of the world, significant tax rebate is provided for the investment made in research & development. The list is long- Australia, Austria, Austria, Belgium, Brazil, Canada, China, Czech Republic,Denmark, France, Ireland, Italy,Spain, South Africa, Uk, US etc. Let us look at one country to find out how it works. In Australia, below is the mechanism:

1. 45% refundable R&D tax offset for a company/group having turnover of less than $20 million

2. 40% non-refundable R&D tax offset for a company/grouped having turnover of more than $20 million.

Such incentives highly encourage corporate entities to invest in R&D (specially funding in universities), which ultimately facilitates continuous growth of the country through a knowledge and innovation based culture. The impact is clearly visible. These countries are not only continuously progressing, they are globally pioneering in science and technology.

In the budget for 2017-18 fiscal year, allocation for education went up by 14 percent compared to last fiscal (an allocation of Tk 50,432 crore which was 12.6 percent of the total budget size). It is expected to boost further in this year. If a significant portion of this is availed from corporate segment in terms of tax-free investment, that can be highly beneficial for all concerned ends.

As this practice is still to be established in country, so some mechanism can be sorted out to institutionalize it. Basic principle can be-corporate entities should be encouraged to invest or donate in education, research and relevant sectors as related to their working arena. The recipients of these funding will be corresponding universities or other related educational institutions. There can be some time-bound, specific activities/projects to be run through joint supervision from both industry and academia end. Some intermediary body (like: UGC, Ministry of Education or any specialized wing) can play the role of overall co-ordination and control. For the approved range of investments by corporate entities for this purpose, they can get certain amount of tax rebate.

Such scheme can provide multiple benefits like-

1. Corporate entities availing tax rebate for certain portion of their investment/expenditure

2. Education sector availing significant amount of funding for research – innovation-knowledge development, which can ensure their faster growth and also reduce the load on government regarding budgeted expenditure for education

3. Facilitating effective industry-academia collaboration which will gradually create a unique horizon for country’s overall development. As our country and its people are moving ahead fast through the chain of development, it seems high time to consider some effective implementation of such scheme through combined contribution from all concerned ends.

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