Bangladesh needs to create a flexible tax system for new businesses to improve its economy. There are around 1,000 active companies in Bangladesh’s startup community working in various sectors. To become successful, these companies need new ideas, which won’t come to mind often if the budget is low.
Startups need tax exemptions and other measures to help them grow. So, to have a successful business in Bangladesh, you’ll need to follow these steps. In that case, Bangladesh’s government should establish some effective tax regimes.
The Importance of a Startup-Friendly Tax Regime
New businesses are considered the backbone of an excellent economy. That’s why a startup-friendly tax regime is necessary for a country like Bangladesh to have innovative ideas and economic growth. This will reduce all the financial constraints and encourage the citizens to invest in creative ideas.
What is a Startup-Friendly Tax Regime?
Some important aspects create a startup-friendly tax regime for a country. They are tax credits for new businesses, simple tax forms, tax exemptions, etc. These will help a company save more money to use for growth.
A simplified tax process can decrease the tax burden, allowing people to spend money on high-tech products with the latest technologies.
For example, the UK and Singapore are startup-friendly countries with favourable tax policies. If Bangladesh starts following the necessary steps, it will be easy for the government to take advantage of technological business advancements.
A startup-friendly tax system is the pillar of the business environment. It helps the economy grow fast and encourages creativity and innovation.
Challenges Faced by Startups in the Current Tax Regime
The current tax system has many issues, so it is expensive for startups to start a new business in Bangladesh. These issues must be fixed ASAP to have better growth and implement innovative ideas. Let’s discuss them briefly here:
Funding and Financial Barriers
Evidently, startups in Bangladesh need help to raise venture capital. The current tax system isn’t suitable for investment, making it hard for new businesses to get the money they need.
Lightscale Partner says that the investment ratio in Bangladesh dropped by 70% in the last few years. The situation is getting worse due to high tax rates and insufficient incentives. If gains get eaten up by taxes, investors have very little reason to bet on startups in the first place.
As a result, countless promising startups are left to die on the vine in this ecosystem that suffocates growth and innovation.
Bureaucratic and Compliance Issues
The Bangladeshi regulatory situation is demanding and challenging for any startup to overcome. Coping with all kinds of regulations and getting the necessary licenses takes time and costs. The Daily Star reported that bureaucratic red tape is causing significant business delays.
That is on top of compliance costs. Regulation compliance can demand a huge chunk of resources for startups leaving, and there are not enough resources to actually focus on their primary business.
Most importantly, addressing these bureaucratic and compliance issues will be the key to making Bangladesh a more startup-friendly environment. Streamlining regulations and lowering compliance costs would benefit newly formed businesses and encourage more entrepreneurial activity.
Critical Considerations for Building a Startup-Friendly Tax Regime
Bangladesh’s tax regime is currently weak, so startups face many challenges. To solve this, Bangladesh needs a tax-friendly environment that will encourage new ideas and a better economy.
For instance:
Simplifying Tax Exemption Policies
A proper tax regimen should have clear and specific rules about tax exemptions. With a perfect tax system, founders will have less to worry about and can better manage their businesses.
For example, Singapore’s Startup Tax Exemption Scheme exempts new startups from paying taxes on the first SGD 100,000 of their standard chargeable revenue for three years.
The Seed Enterprise Investment Scheme in the UK is another one that offers investors a tax break, incentivising investment in early-stage startups. Similar tax exemption policies may give local startups the necessary space for growth and innovation inside Bangladesh.
Implementing Effective Tax Incentives for Startups
The government can make the startup community more tax-friendly by offering big tax incentives. Bangladesh may consider some lucrative tax incentives, such as tax credits, lower tax rates, and refunds on R&D costs. These incentives will give new businesses a boost to get started.
Israel has a tax incentive scheme that lowers corporate taxes and gives foreign owners handouts for research and development. This has helped Israel gain a new identity as a tech startup nation.
With a similar mindset, Bangladesh can quickly help all the startups run their businesses and grow.
Enhancing Access to Funding
To help startups get more money, venture capital and foreign direct investment should be supported by a country. If Bangladesh uses these policies, more people will be interested in investing and many businesses will grow.
Remember that increased venture capitalist tax advantages and fewer foreign investment limits will benefit Bangladesh. All these positive changes will help Bangladesh establish the best startup-friendly tax system.
Conclusion
A startup-friendly tax regime may be very beneficial for encouraging innovation and economic growth in Bangladesh. With the help of such a regime, defined tax exemptions could be offered to startups to reduce their financial constraints and facilitate entrepreneurial activity in the country.
Many opportunities and challenges are evident for Bangladesh’s policymakers regarding the future of the startup ecosystem. Policymakers should examine these essential points.