Finance Minister AHM Mustafa Kamal unveiled yesterday the Tk. 678,064 crore national budget for the financial year 2022-23. 

During his speech, he put emphasis on the growing startup ecosystem of the country, with a special mention of how newer startup initiatives should be supported by the government through special incentives.

As per the latest budget announcements, the government is introducing a startup sandbox to assist newer startups thrive in the competitive market of today - providing special exemptions and benefits for companies that fall under the specified guidelines and conditions.

Despite the startup ecosystem of Bangladesh being relatively new, it is an integral part of national revenue and a source of employment for many local talents and entrepreneurs. With the government's decision to provide dedicated support to growing startups, it seems the local startup scene is on its way to becoming global competitors of tomorrow.

While the proposed benefits seem beneficial on paper, a deeper look into the regulations and conditions involved may offer a different look - raising the obvious question:

Is the National Budget for FY 2022-23 truly startup friendly? 

The proposed benefits

According to the proposed benefits, local startups will be exempted from bindings of all types of reporting except submitting income tax returns.

Startups will also be allowed to carry forward losses over a period of nine years. 

For startups, the government will also be withdrawing restrictions on expenditure and reducing the rate of turnover tax to 0.1% from 0.6% for the next fiscal year. 

Conditions for the benefits

However, a disclaimer was added that startups older than 5 years will be unable to receive the benefits of the startup sandbox.

Furthermore, Bangladeshi startups with 50% or more ownership under foreign investors will also be excluded from the exemption and benefits. 

Some examples of these older startups that do not fall under the growth year definition of the startup sandbox are Chaldal, Pathao, Truck Lagbe and BDjobs.com. 

What do the local startups think?

"Chaldal started in Bangladesh and is still based in Bangladesh. I think such dedicated Bangladesh-based startups should receive these benefits," said Zia Ashraf, COO of Chaldal. According to him, the limit of five years is too short of a timeframe, especially for local digital startups that have been around for a long time but received no such benefits during their inception. "We only recently started discussing digital startups and benefits - right after the pandemic. This limit should be increased to at least 15 years to ensure more local startups can avail the benefits."

Another disclaimer that should be added, according to Ashraf, is that one of the founders must be a Bangladeshi with a valid Bangladeshi passport. "We should be giving such benefits to startups based in this country, so it is crucial for startups under these conditions to be based in Bangladesh," he added.. 

Companies that registered before 2017 are not eligible for these benefits, as per the proposed conditions. "A lot of prominent companies are going to be excluded, such as Chaldal and Pathao - companies that have been creating a lot of employment opportunities in this country," says A.K.M Fahim Mashroor, co-founder and CEO of BDJobs.com and Ajkerdeal. 

According to Mashroor, startups with foreign registration not being included poses a significant problem for the startup ecosystem of Bangladesh. "Such conditions should be relaxed so such companies aren't left out of these benefits provided by the government", he added. "Make the limit 10 years instead of 5, and companies with over 50% foreign shares should also be included."

Anayet Rashid, CEO of Truck Lagbe, claimed that startups that aren't being included in this government initiative are companies that have already established themselves and thus don't need the exemptions and benefits provided by the sandbox. "The benefits being provided will mostly be helpful to startups that are new and started business recently. I don't see any issues with such an initiative," said Anayet. 

The beginning phase is when startups undergo the most struggles, states Anayet. Issues such as tax and VAT happen frequently and founders of new startups lack the knowledge to properly utilise tax and compliance laws. 

"The government is making the initial struggles easy for newer startups, such as official reporting and filing issues. Newer startups don't possess the resources and experience to properly tackle such issues, and only after they reach a certain growth stage and receive funding can they move past such problems," he said. 

Anayet believes that the government's decision to target the initial struggle stage of newer startups is a good choice. "Our company's registration was in 2018, so we technically fall under these benefits if we apply for this initiative. Companies that are older than 5 years and more are already well funded and can maintain government regulations." 

"However," Anayet added, "The limit should have been increased to 6 to 7 years, as the concept of startups is still quite new in Bangladesh. Furthermore, the ruling that says a startup company should not be a subsidiary of another holding company or have 50% or more of its shares owned by another company - that is another complicated issue that needs to be revised."

According to Anayet, while it can be understood that the subsidiary condition was placed by the government as a safeguard measure, the problem arises that most startups in this country have significant shares outside Bangladesh. 

"Majority of our shares are held by our own US-based company, so I think this ambiguity regarding subsidiaries should be cleared - or else that leaves a very small number of local startups that can enjoy these benefits," he added.

What do investors think?

Shameem Ahsan, General Partner at Pegasus Tech Ventures, also believes that the growth year limitation should be increased to at least 10 years so more prominent local companies can be included. 

According to Shameem, there was an additional proposal of companies with over Tk. 100 crore turnover to be excluded from the benefits as well - a condition he feels should be revised and reconsidered as well. 

"We would like to thank NBR (National Board of Revenue) and the ICT Division for introducing this initiative," said Ahsan, "However, Bangladeshi startups don't necessarily become successful after a turnover of Tk. 100 crore. There is still a need to nurture them so they can compete with global companies".

"Local companies like Chaldal, Pathao and Shohoz are older than 5 years, but they have not become profitable companies yet. We still need to support them," added Ahsan. "A lot of local companies need to have foreign holdings, sometimes in their own international companies, to facilitate fundraising." 

Even though the newest budget announcement seems like the next best thing for local newer startups, it is still too soon to tell if it will truly be beneficial for the still-growing startup ecosystem of Bangladesh.