Bangladesh’s proposed VAT exemption for startups has sparked concern. Industry leaders and investors say the measure, included in the FY2026–27 budget, could distort competition, penalise successful firms and weaken foreign investment sentiment.
The concern centres on how the benefit will be applied. Under the proposal, only startups within a defined early growth period and with annual turnover below Tk100 crore will qualify for the exemption.
Once a company crosses that turnover limit, or moves beyond the defined ‘growth years,’ it will lose the benefit and have to pay the standard 15 per cent VAT like other businesses.
Industry leaders say the problem is not the support itself, but the sharp divide it creates between ‘eligible startups’ and ‘scaled startups’. A company just below the threshold may enjoy a full VAT exemption, while a slightly larger competitor must charge full VAT.
In markets where pricing is tight, they warn, that difference can decide who wins customers.
CEO of Pathao Fahim Ahmed said the framework is not new, but the expanded VAT exemptions significantly increase its market impact.
“If a startup’s annual turnover exceeds Tk100 crore or it is beyond its growth years, it no longer qualifies for these benefits,” he said.
He said earlier incentives were limited to tax adjustments and loss carry-forward benefits, but the new proposal goes further by removing VAT on local sales, imported digital services and office rent.
According to him, the most sensitive part is the removal of VAT on local sales because it directly changes pricing in the market.
He explained the practical impact in simple terms. If one company has to add 15 per cent VAT to its price while another does not, the tax-free company can sell at a noticeably lower price.
In competitive sectors, that gap can be enough to shift customers quickly, he said.
Fahim also warned that the rule could create another gap in the system. A newly formed company, including subsidiaries or affiliates of large business groups, may qualify as a startup and receive the exemption, even while competing with long-established startups that no longer qualify.
According to him, this creates pressure on scaled startups that have already grown beyond the threshold, including companies that have built large workforces and attracted foreign investment.
Co-founder and CEO of ShopUp Ataur Rahim Chowdhury said his company’s own turnover already crosses the Tk100 crore mark each year, placing it outside the scope of the proposed benefit.
He said the policy, as structured, was designed with brand new startups in mind, leaving older and larger players unable to qualify.
“The overall policy, as I understand it, was framed for completely new startups. Those of us who have been around longer do not fit the current definition,” he said.
Chowdhury said ShopUp has proposed a different approach to the authorities, one based on profit rather than turnover. He said such a model would help not just his company but startups more broadly in the years ahead.
“If eligibility could be based on profit instead, it would not just help us. It would help other startups in the future as well,” he said.
He said discussions with the relevant authorities on this proposal are already under way.
“Some dialogue is ongoing. We are making the case that a profit-based definition would work better,” he said.
Chowdhury explained why turnover, on its own, can be a misleading measure of a startup’s actual scale.
He said inventory-led businesses like his often see their digital inventory and balances counted as part of turnover. This can push the total well above Tk100 crore even in a company’s first year of operation, despite the business not actually being large or profitable in real terms.
“Turnover shows up in many different forms. For an inventory-led business, our digital inventory balance also gets counted as turnover. That alone can push the total above Tk100 crore,” he said.
He said this is precisely why a single turnover-based cutoff fails to capture the real picture across different types of startups, and why he believes a profit-based threshold would be fairer.
“Since it’s difficult to define eligibility by category, we’ve suggested a different approach, a cap based on profit rather than turnover. Whether the authorities adopt it is now up to them,” he said.
A different view was offered by Shawkat Hossain, CEO of Bangladesh Venture Capital Limited, who said the system is designed to support early-stage companies and naturally excludes firms that have already scaled.
He said governments cannot extend the same benefits to every business and must draw a line somewhere to define who needs support.
“There has to be a cutoff somewhere. Governments cannot extend the same benefits to every company at every stage,” he said.
He added that as companies grow, it is normal for them to move beyond incentive schemes.
“Companies with more than Tk100 crore in turnover will naturally move beyond the eligibility criteria as they scale,” he said.
Hossain noted that the threshold is not fixed permanently and may change in the future depending on policy review and economic conditions.
“The limit could move from Tk100 crores to Tk200 crores or Tk250 crores depending on how the policy evolves,” he said.
He said the main objective of the policy is to support early-stage startups that are still trying to survive and grow.
Hossain acknowledged that larger startups see the issue differently because tax differences can create competitive pressure.
“Everyone sees it from different perspectives, and when one side benefits, another side may feel disadvantaged,” he said.
He also said discussions on the framework are ongoing with relevant stakeholders and that changes are still possible based on feedback and evidence.
