Surprisingly, out of hundreds of eligible businesses, only 17 startups have applied for the tax benefits offered through the Startup Sandbox, while the rest missed the June 30 deadline to register.
According to industry insiders, the number of companies affected is around 300 to 500, but the lack of awareness across the industry was the reason for the lack of response.
Startups regretting the missed opportunity are calling for an extension of the deadline.
Industry experts said startups that register in the sandbox will see a huge difference in their tax bill as the minimum tax on turnover will be reduced by one-sixth.
For sandbox companies, the minimum tax rate on sales will be reduced from 0.6% to 0.1%.
Also, under the sandbox, registered startups can carry forward losses for nine years, while other companies can only carry them for six years. The longer losses can be carried forward, the easier it will be for companies to file.
According to the National Board of Revenue (NBR), Chamak Solutions, Delivery Tiger, Instasure, Get-Aid, Fabric Lagbe, Med Easy, Med Box, Pulse Tech, Cyber Aeronautycs, Grit Technologies, Sasthya Seba, Dhaka Cast, Parents Care, Sokrio Technologies, Drip Irrigation and Biomafy Ltd were the few startups that applied for the benefit offered to young startups.
“We didn’t know about the tax benefits offered by the sandbox registration because we didn’t have the in-house tax expertise,” said Kishwar Hashemi, co-founder and CEO of Mitro, an embedded finance startup that has registered.
“It’s the same situation with most of our startup peers,” he said, adding that disappointing companies were asking for an extension to the deadline.
Snehashish Barua, a chartered accountant and director at SMAC Advisory Services, told TBS that the tax benefit is not insignificant and should be ignored.
The Finance Act, 2023 provides an opportunity for sandbox registration with the NBR to avail the benefits offered.
According to Barua, startups incorporated after June 30, 2017, not part of any merger or demerger plan and with annual turnover of less than Tk 1 billion could have applied for sandbox registration by June 30 this year.
Startups incorporated after June 30, 2023 must apply by June 30 of the fiscal year following their incorporation.
To be considered a startup, NBR requires a company to be involved in the innovation, development, distribution and commercialisation of new products, processes and services that operate through technology and intellectual property.
Sandbox-registered startups established between July 1, 2017 and June 30, 2023 will be eligible for tax benefits for three years until June 30, 2027.
Newer companies incorporated after June 30, 2023 will be able to enjoy tax benefits for five years after the end of their incorporation.
“It is unfortunate that around 300-500 eligible companies were not recognised by the tax department due to lack of awareness,” said AKM Fahim Mashroo, a tech entrepreneur who founded country’s leading job portal BDjobs, e-commerce platform AjkerDeal and logistics startup Delivery Tiger.
“There is a misconception among many young budding entrepreneurs that loss-making businesses do not have to pay income tax. This is because they are unaware of the minimum tax rate that is applicable to all businesses,” said Mashrur, who is also former president of the Bangladesh Software and Information Services Association.
“While they do their best to build technology-enabled businesses in the early stages, many companies try to avoid the tax hassle and wait for the time when they have to deal with it,” he added.
“The cost of tax compliance is high for young startups, who primarily innovate despite the risk of failure,” Mitro’s Hashemy said, adding that tax compliance should be easier for them.
An awareness session organised by government-backed venture capital firm Startup Bangladesh in June helped entrepreneurs in attendance create awareness about last-minute applications, some of the participants said.
Like Hashemi, Rajiv Das, founder of logistics startup Loop Freight, said he “hopes and needs another opportunity to register under the sandbox.”
