How do we climb the middle-income ladder? Industrialisa-tion holds an answer, accented by the government of late. Through the November 2010 Bangladesh Economic Zones Act, it sought to generate 10 million jobs and boost annual exports to US$ 40 billion by 2025, in part by establishing 100 special economic (or export processing) zones (SEZs/EPZs) across 30,000 hectares of land. What are the legal framework and economic details in the blueprint? Broadly, the SEZ/EPZ industrial pedigree relaxes a variety of laws to attract both domestic and foreign investors, simultaneously offering attractive tax-holidays. For Bangladeshis, up to 30 planned economic zones (PLEZs) have already been specified, scattered as they are across the entire country, in addition to seven private economic zones (PREZs), with two in Munshiganj, two in Naraynganj, and one each in Bagerhat, Comilla, and in Narsingdi); while a number of foreign economic zones (FEZs) have been signed, with China, India, and Japan among the early-birds. Both investors and developers benefit from laws on investment, customs/duties, labour, work permits/residency/citizenship, utilities, and so forth. For investors, tax-holidays begin with a 100 per cent exemption for the first two years, 80 per cent in the 3rd year, then a 10 per cent reduction each year until the 11th year, when they disappear. For PREL/PREZ/FEZ developers, tax-holidays begin with 100 per cent exemption for 10 years, then 70 per cent for the 11th year, 30 per cent for the 12th, and zero after the 13th year. Paved with good intentions, the SEZ/EPZ structure in a country still undergoing a major urban migration (of rural inhabitants abandoning the farm/fishery for the factory), and filled largely with make-shift RMG (ready-made garment) start-ups, may just be a little too constricted. Before the RMG revolution (from the early 1980s), we just did not have enough industries to tax to finance the agriculture-to-manufacture transformation: industrial production barely amounted for 11 per cent of the gross domestic product (GDP) in the 1970s; but just because in the 21st Century we see it expand from 27 per cent to 32 does not mean it is robust enough to be milked by the national treasury when other options may be more efficient. Even our tax-base is not healthy enough for a tax-holiday structure to thrive. The National Board of Revenue (NBR) counted only 1.15 million tax-returns for the 2014-5 fiscal year; and though that figure increased by 14 per cent from 2013-4, we still only have about 1.7 million tax-payers in 2015-6 in a country holding 160 million citizens. The key message is clear: since creating 100 tax-free SEZz/EEZs directly or indirectly deepens the burden of the handful who step up to do their tax-paying duty (while brandishing a Damoclean Sword over those citizens contemplating to make their first tax-returns in the near future), the tax-breaks and holidays can only widen inequality before any tangible narrowing can set in. Generally, could not the entire country be converted into one single SEZ/EEZ? Although the pros and cons of that argument is not the subject of this article, suffice to say to naysayers that the national coffers would not run dry if taxation begins with consumption, rather than production at its infancy stage: shifting the tax-burden from essential to conspicuous consumption progressively; and, after a grace period, induct every producer, local and foreign, into a tax regime. As initiators and innovators, producers deserve a finite tax-break just so the country’s economic take-off goes smoothly and sufficiently in desired directions. Countries have, by and large, been distinguished in terms of the development strategies adopted, whether export-led or import-substitution being the most popular paradigms. Ours is an export-led example, and what sets us apart from both other export-led and import-substitution countries has been the relative absence (or downsizing) of government subsidies: among export-led countries, Japan and South Korea exemplified the heavy-handed governmental support in the initial (even mature) developmental stage/s; while in import-substitution countries, like India, but particularly across Latin America, governmental intervention was pivotal (making their products all too pricey, thus delaying growth). Consumers should not bear the full costs of development. Inasmuch as they consume, they must: if what they consume goes beyond the essential food, clothing, and medicine required, they can afford to pay a tax upon the items purchased. Even producers happen to be consumers (food, clothing, and raw materials), thus exposing every citizen to the tax laws. This should influence the middle-income pathway: impose less on income until such a time when the country reaches the centre of the middle-income measurement (say, per capital income of US$ 4-5,000, that is, four times more than presently), and more through (a) symmetrical value-added taxes on consumption, hoping, for us, the tax-base is expanded far beyond the 1.7 million taxpayers currently registered; and (b) producer profits when the tax-holiday season is over. Indirect taxation suits the former better (that is, consumers be taxed upon purchase, rather than through a written cheque during the tax-paying season), while year-end taxation is appropriate for the latter. We might resultantly find our revenues creeping upwards, even exceeding annual budget outlays, in the process: this is silent evidence of attaining middle-income status. We can then begin to build infrastructures with our own cash, instead of borrowing; even better, those infrastructures can be improvised when production tax-holidays evaporate. This, in turn, takes us to the SEZ/EPZ pre-conditions. Since non-labour inputs have to be acquired and outputs have to be sold, the earlier the benefits trickle from key infrastructures, the longer the competitiveness of SEZs/EPZs, which only enjoy a short viable life in a competitive market determined by the product life-cycle. Transportation (to get inputs and sell products), markets (malls or family-owned stores), banks and insurance (where we are well endowed), and universities (for research and development, another existing area of strength for us) constitute some of the immediately needed infrastructures. If put in place in 2-3 years, we should easily succeed in boosting exports beyond US$ 40 billion by 2025, employing 10 million people, thereby generating 10 million new consumers and tax-payers, by 2025, and transforming SEZ/EPZ privileges to a uniformly taxed country-wide special economic zone. Of course, the key enabling condition remains political order. Here is an investment opportunity that politicians might themselves find lucrative. If they wish to expand their income, all they have to do is to open up unfettered factories, and bring in the investors. They could then sit back to enjoy the fruits, knowing that the spread-effects would boost the national pie, and thereby their own income.
