Banking on digital economy

For years, the country boasted of being “Digital Bangladesh”, and yet beneath the slogans, the country’s telecom and technology sectors were often weighed down by high taxes, regulatory uncertainty and policies that made long-term investment difficult.

The national budget unveiled yesterday marks a dramatic shift from that approach.

In the most sweeping fiscal packages announced for the country’s digital economy yet, the government has rolled out a broad range of tax cuts, incentives and funding support aimed at making internet access cheaper, digital devices more affordable and technology entrepreneurship more attractive.

Taken together, the measures amount to a major policy bet: that Bangladesh can vie to be a regional digital powerhouse at a time when artificial intelligence, advanced connectivity and digital services are reshaping economies across the world.

The incentives are built around three pillars: connectivity, affordability of digital devices, and entrepreneurship and innovation.

The government has introduced tax cuts, incentives and funding support to lower internet costs, make digital devices more affordable and encourage tech entrepreneurship

Policymakers hope the package will not only accelerate Bangladesh’s digital transformation but also attract foreign investors seeking alternatives to traditional technology hubs in Asia.

Perhaps the most visible change for consumers is the proposed replacement of the longstanding Tk 300 SIM tax with a 15 percent VAT.

Alongside a reduction in source tax on mobile network services from 12 percent to 10 percent, the move is expected to reduce the tax burden on telecommunications and encourage wider adoption of mobile services.

Industry stakeholders have long argued that Bangladesh’s telecom sector remains one of the most heavily taxed in the world.

The new measures suggest the government has accepted the argument that connectivity should be treated as an economic enabler rather than a luxury service.

The budget also seeks to lower the cost of accessing technology.

Advance income tax on the import of key digital products such as computers, printers, portable computing devices, flash memory and monitors has been reduced to 2 percent.

Import taxes on 22 categories of raw materials used by local mobile phone manufacturers have been cut to 1 percent from rates as high as 5 percent previously.

The goal is straightforward: make smartphones, computers and other digital devices more affordable while strengthening domestic manufacturing.

That objective carries growing urgency. In the digital age, access to a smartphone or computer increasingly determines access to education, financial services, healthcare and employment opportunities.

The budget’s most significant long-term signal, however, may be directed not at consumers but at entrepreneurs.

Start-ups, freelancers and content creators emerge as some of the biggest beneficiaries.

The government has announced a Tk 500 crore annual start-up fund.

Around 500,000 freelancers and individual content creators will also be exempt from the existing 7.5 percent source tax.

More importantly, startups with yearly revenue of up to Tk 100 crore, freelancers and content creators are set to enjoy a decade-long package that includes zero turnover tax, zero VAT, zero advance tax, zero advance income tax, zero regulatory duty and zero customs duty.

For start-ups whose annual revenues are upwards of Tk 100 crore, a separate package will be announced in the supplementary budget.

The significance of these measures extends beyond tax relief.

For years, start-up founders complained that Bangladesh’s tax structure penalised young companies before they achieved profitability.

Turnover tax, in particular, required businesses to pay taxes on revenue regardless of whether they were making money.

Removing that burden could improve survival rates among early-stage companies, allowing founders to invest scarce resources into product development, talent acquisition and expansion.

The government appears to be making a broader strategic calculation as well.

Artificial intelligence is rapidly redrawing the global technology landscape. Countries such as India and Vietnam have aggressively positioned themselves to attract technology investments, AI research and digital service exports.

Bangladesh now appears determined to join that competition.

At the centre of this policy shift is Rehan Asad, the prime minister’s adviser on ICT and telecommunications, who left a C-suite position at a US technology giant to join the government.

According to officials familiar with the process, much of the past month was spent in intensive negotiations between the ICT division, the National Board of Revenue and the finance ministry to craft a package capable of fundamentally changing the country’s digital competitiveness.

“Our goal is simple. For citizens, we want connectivity that is affordable, reliable and world-class. For telecom operators and investors, we want predictable, globally competitive tax policies. For start-ups, technology companies and manufacturers, we want to remove every major regulatory and financial barrier.”

Bangladesh must become one of the world’s leading destinations for digital innovation, technology manufacturing and AI investment, Rehan told The Daily Star.

Whether Bangladesh can translate that vision into reality will depend on execution. But the message sent by this budget is clear: the country intends to compete for a place among the leading digital economies of Asia.