Some companies had established their industrial operations in the Economic Zones to avail themselves of the tax exemptions under the Bangladesh Economic Zones Authority (BEZA) Act 2010, not for export but for sale in the local market. This is known as a home consumption bonded warehouse. The BEZA Act, 2010 was enacted to establish economic zones under Section 11, like the Bangladesh Export Processing Zone Act, 1980, which has been empowered to issue home consumption bonded warehouse.
A home consumption bonded warehouse is a type of warehouse where goods are entered and kept for domestic sale, and all applicable duties and taxes are paid, rather than being re-exported. Unlike typical bonded warehouses that store goods for export, these are for goods that will be sold and used within the country’s borders. This has given an advantageous position to some manufacturers over other manufacturers situated outside the economic zones, who used to pay taxes during the import of raw materials.
This is state aid to certain sectors. State aid through tax exemption means a government reduces or removes a tax for certain companies or sectors, giving them a financial advantage (a ‘selective’ benefit) over others. Such financial advantage from state resources (like tax breaks) to undertakings potentially distorts competition. State aids are justifiable to achieve specific policy aims, such as supporting sustainable energy or regional development, if proportionate and necessary.
The National Board of Revenue (NBR) issued exemption certificates under Sections 52 and 53 of the Income Tax Ordinance, valid for ten years (2018-2028) for some industries. Subsequently, the Ministry of Finance issued SRO No. 104/2020 on 25.03.2020, which excluded certain goods, such as edible oil, sugar, cement, and others, from the benefit of tax exemptions. The issuance of SRO effectively revoked the exemptions granted under the earlier SROs and deprived them of the tax benefits promised to encourage investment in the economic zones. Certain enterprises invested in home consumption bonded warehouses have filed a case with the High Court. The Government, in defence, stated that the new SRO was issued under its authority to ensure fair market competition and was in line with the provisions of the Income Tax Ordinance, 1984. The Government argued that the petitioners were enjoying benefits that were not intended for companies marketing their goods locally.
The High Court ruled in favour of the petitioners, but the Government, dissatisfied with this judgment, filed an appeal to the Appellate Division of the Supreme Court. The Government contended that the issuance of SRO No. 104/2020 was within its legal rights and served the public interest. This appeal, therefore, seeks to reverse the High Court’s decision, arguing that the tax exemptions should be withdrawn in accordance with the new SRO to ensure equitable market conditions.
One of the core principles of a fair and just tax system is equality. The withdrawal of tax exemptions can be justified as a measure to ensure that all industries dealing with similar commodities face a level playing field. The principle of equal treatment ensures that businesses, regardless of their location or sector, are subject to similar tax obligations when dealing with the same set of commodities. As per the Competition Act 2012, some enterprises cannot get tax exemptions over others, which is discriminatory to the other set of industries outside the bonded warehouse and marketing the same local market. By removing these exemptions, it ensures that all industries dealing with the same commodities are taxed in a uniform manner, thereby preserving the integrity of the tax system.
The withdrawal of tax exemptions can be justified in the light of broader national fiscal policy objectives. For example, if the Government’s fiscal policy shifts towards ensuring a more sustainable and comprehensive taxation system, it might be necessary to reduce or remove exemptions that apply to specific sectors. By applying the same tax regime to all industries dealing with the same set of goods, the Government can ensure that its fiscal policy is consistent across the economy, reflecting a more transparent and predictable tax environment.
The rate of exemption can never be treated as right; rather, the same is a privilege which can be recalled/ withdrawn/ rescind by the Government at any time, considering the prevailing economic condition of our country as a basis of necessity. The impugned judgment and order passed by the High Court Division is hereby set aside by the division bench of the Appellate Division on 03.03.2025 comprising Mr. Justice Md. Ashfaqul Islam, Mr. Justice Md. Rezaul Haque and Mr. Justice S. M. Emdadul Hoque.
The withdrawal of tax exemptions can be justified as a measure to ensure that all industries dealing with similar commodities face a level playing field. The principle of equal treatment ensures that businesses, regardless of their location or sector, are subject to similar tax obligations when dealing with the same set of commodities. The principle of promissory estoppel does not apply to the Government’s exercise of its sovereign functions, particularly when these functions serve the broader public interest. While certain sectors within the Economic Zones receive preferential tax treatment, it can create distortions in the market by giving those industries an unfair advantage over those outside the zones. Furthermore, Section 184F of the Income Tax Ordinance, 1984 (now replaced by the Income Tax Act 2023) provides that the provisions of the Income Tax Ordinance shall prevail over conflicting provisions in other laws, solidifying the Government’s authority to issue such notifications without interference from other statutory instruments.
It is unfair for companies within economic zones to enjoy tax benefits while competing with others in the local market who do not receive similar advantages. This selective advantage could potentially lead to unfair pricing, where goods produced within economic zones are artificially cheaper than those manufactured outside. The withdrawal of tax exemptions for certain goods ensures that all market participants, regardless of their location, compete on equal terms. Therefore, the Government’s intervention is in the broader public interest, aiming to maintain equity in the national economy.
The Government’s primary responsibility is to act in the public interest. The withdrawal of these tax exemptions is a measure aimed at preventing economic distortion and ensuring that the benefits of tax relief are not concentrated in the hands of a few entities.
The views expressed in this article are solely those of the author
The writer is a legal economist and CEO, Bangla Chemical. E-mail: [email protected]
