Budget proposes tax cuts to boost telecom, startups

The interim government has unveiled a tech-focused fiscal agenda in the proposed national budget for FY 2025-26, offering tax relief for telecom operators and internet service providers while expanding incentives for local startups.

At the same time, the budget tightens value-added tax (VAT) regulations on mobile manufacturing, e-commerce commissions, and over-the-top (OTT) digital streaming platforms.

One of the most notable measures is the proposed reduction in turnover tax for mobile phone operators, from 2.0 per cent to 1.5 per cent, addressing a long-standing industry demand amid rising operational costs and falling average revenue per user (ARPU).

The government has also adjusted the VAT structure on mobile handset production. While extending VAT exemptions on the manufacturing and assembly of mobile phones until June 30, 2027, the exemption has been slightly scaled back.

As a result, VAT rates on mobile handsets have been revised upward-from 5.0 per cent and 7.5 per cent to 7.5 per cent and 10 per cent, respectively.

Industry insiders have expressed concerns that the revision could raise handset prices.

However, Xiaomi Bangladesh Country Manager Ziauddin Chowdhury downplayed the impact.

"This will have no significant effect at the consumer or business level. Manufacturers may see a slight dip in margins, but it's not substantial," he said, noting that most local manufacturers add around 30 per cent value during production.

On the digital access front, the budget proposes cutting the withholding tax on Internet Service Providers (ISPs) from 10 per cent to 5.0 per cent. The move is expected to reduce internet costs and improve service quality nationwide.

Reacting to the proposal, Mohammad Aminul Hakim, President of the Internet Service Providers Association of Bangladesh (ISPAB), said the move would primarily benefit larger ISPs.

"Smaller providers may not see a noticeable benefit from the tax cut," he added.

To fuel innovation and support early-stage ventures, the government has proposed a dedicated Tk 1.0 billion startup fund for FY 2025-26.

"Considering the potential of the IT sector and the need to encourage new entrepreneurs, we have decided to allocate this amount as part of our digital transformation drive," said Finance Adviser Dr. Salehuddin Ahmed during his televised budget speech.

In a boost to the ICT hardware segment, the VAT exemption on computer monitors has been expanded to include screens up to 30 inches-an increase from the current 22-inch limit.

Industry observers expect this will help make larger displays more accessible, particularly for education and professional use.

Meanwhile, the government is tightening tax compliance in the growing digital commerce space. VAT on commissions earned by online marketplaces has been raised sharply-from 5.0 per cent to 15 per cent.

This change targets e-commerce platforms operating on a commission-based model, signalling a push for higher revenue collection from the sector.

Additionally, a 10 per cent supplementary duty has been proposed on OTT (Over-The-Top) platforms that stream content over the internet. The move is seen as part of a broader strategy to regulate digital media and bring it within the formal tax net.

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