Contribution of Tax Induced Foreign Direct Investment for Sustainable Development in Bangladesh

Khadiza Begum
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Khadiza Begum: PhD fellow, Institute of Bangladesh Studies (IBS), University of Rajshahi, Rajshahi, Bangladesh. & Assistant Professor of Accounting, Department of Accounting, Rajshahi College, Rajshahi. Bangladesh.

International Journal of Science and Business, 2024, vol. 34, issue 1, 76-91

Abstract: Tax incentives play a crucial role in promoting and facilitating foreign direct investment (FDI), thereby contributing to a country's overall economic development. However, Bangladesh experienced a decline in FDI-based foreign income in the first two quarters of 2018, partially attributed to a lag in FDI from the USA. Given Bangladesh's historical challenges with deficit financing post-independence, increasing self-revenue income and leveraging tax-induced FDI are imperative for achieving sustainable development goals. To develop tax incentive-based hypotheses, four investment climate factors are considered: i) Corporate Tax Rate (CTR), ii) Tax Holiday (TaxH), and iii) Tax Concession (TaxC). This research adopts an analytical and descriptive approach, employing a mixed-method research methodology to analyze data sourced from both primary and secondary sources. Data collection methods include semi-structured interviews and documentary analysis, focusing on regulatory bodies like NBR, BIDA, and BOI for tax incentive analysis, and relevant organizations such as BB, World Bank, UNCTAD, BIDS, FIAS, BEZA, and BEPZA for FDI-related documents. The impact of tax incentives on FDI inflows in Bangladesh from 2001 to 2020 is analyzed using a simple regression model. The independent variables include corporate tax rate, tax holiday, and tax concession, while controlled variables such as gross domestic product (GDP) and corruption are also considered, as they may influence FDI inflows. Statistical analysis reveals a negative influence of corporate tax rate on FDI inflows, while the tax holiday variable exhibits a positive and statistically significant relationship with FDI inflows. Furthermore, alongside the contribution of FDI, this study also examines sustainable development trends from 2016 to 2020, providing numerical insights into its attainment. Overall, this research sheds light on the importance of tax incentives in attracting FDI and its implications for sustainable development in Bangladesh.

Keywords: Tax Induced FDI; Tax incentive; Corporate tax; Tax holiday; FDI; GDP; Sustainable development (search for similar items in EconPapers)
Date: 2024
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