Kathmandu. In this report, we have presented an example of how information technology industries are booming despite the government taking only a few policy steps in the development of the information technology sector.
It seems that Nepal can also leap forward more than what Bangladesh, Vietnam, Sri Lanka and Pakistan have done in the last decade if they can facilitate exports by encouraging tax to make Nepal’s information technology sector competitive in the world market. These countries have made a big leap in their export earnings due to the treatment of the IT industry through the state.
Nepal Association for Software and IT Services Companies (NAS IT) has studied the steps taken by the countries where the IT sector is developing equally and the steps Nepal should take. It seems that Nepal can also advance the policy arrangements and incentives made by Bangladesh, Vietnam, Sri Lanka and Pakistan.
On the other hand, the government of Nepal itself has not been able to implement the programs announced in the budget as well as the tax rate announced by itself has been unstable. The government announced 2 years ago that it would take only 1 percent tax to bring information technology into the formal sector. However, in the current year 2080/81, it has been increased to 12.5 percent. Due to the unstable policy of the government in the IT sector, the investment environment seems to be disturbed. The government has announced the removal of foreign investment limits in the information technology industry through the current budget. The industry department has already removed the limit on such foreign investment.
Although the government has announced the establishment of an information technology knowledge park in Khumaltar, construction has not yet started.
It has not yet been revealed whether the government will allow industries operating with the aim of exporting information technology services to establish contact offices in third countries.
Similarly, the policy of providing up to 10 percent of the foreign exchange earnings made by the industry for purchasing software or programs and installing equipment has not yet been implemented. According to the provisions of the budget, even though Nepal Rastra Bank has issued a circular, the confusion has increased after it has been arranged to take approval from the relevant agencies. Because there is no separate government mechanism to regulate or manage the information technology industry in Nepal. That is why IT companies have not been able to enjoy this facility.
Bangladesh
By 2022, the number of Software and Information Technology Enabled Services (ITES) in Bangladesh has reached 4500. In which the number of workers is around 3 lakh. In 2021/22, Bangladesh’s information technology industry generated a revenue of US$ 1.54 billion.
In 2015/16 it was just $650 million. In 2010, Bangladesh exported information technology services worth 313.25 million dollars. Whereas after 12 years in 2022 it had crossed 720 million dollars. How was this possible after all?
The Government of Bangladesh provided 10 percent export subsidy to exporters of information technology enabled services and hardware, including software. In addition, the local government of Bangladesh has announced that the local software and information technology industries located in the hi-tech park will get 4 percent concessions if they diversify their products and markets. For which value addition is 30 percent.
The Government of Bangladesh has been providing zero tax (tax holiday) on the income of software development, Nationwide Telecommunication Transmission Network (NTTN) and Information Technology Enabled Services providers and operators from July 2008 to June 2024 under fiscal incentives. Because of this, Bangladesh’s leap forward in the IT industry has not stopped. It’s getting more intense.
Similarly, the role of IT Park is considered important behind Bangladesh’s revolution in IT. Around 28 Hi-Tech Parks/Software Technology Parks/IT Training and Incubation Centers have been established across Bangladesh. Bangabandhu Sheikh Mujib Hi-Tech Park in Ghazipur, Bangladesh and Janata Tower Software Technology Park in the capital Dhaka are modern and equipped. The government itself has ensured the facility of high speed internet, modern telecommunication system as well as dedicated power supply in these two parks.
The Bangladeshi government has guaranteed additional facilities and concessions to the IT industries coming to the hi-tech park built by the Bangladesh Hi-Tech Park Authority. Information technology companies set up there are given tax holidays and concessional corporate tax rates.
In order to reduce the cost of production, a ‘duty free’ policy has been implemented on machinery, equipment and raw materials imported by IT companies. Similarly, the government of Bangladesh is implementing the declaration of VAT exemption for information technology companies when providing domestic sales and services. Electricity, water and petroleum products have been provided to such companies at concessional rates. To encourage IT companies in Bangladesh to export, the government there is simplifying and facilitating customs procedures.
Vietnam
There are more than 30,000 IT companies in Vietnam. While in 2014, this number was only 11,500. According to the Vietnam Software Association, the annual growth rate of the country’s IT industry is 25-35 percent. Multinational companies such as Intel, IBM, and Samsung are producing from Vietnam.
As of 2023, Vietnam’s software and IT services industry has reached $8.3 billion. In 2014, this number was a total of 2.8 billion dollars. According to the data of 2023, 5.5 lakh manpower is working in this industry.
Behind the qualitative growth in Vietnam’s IT market are some important policy reforms and announcements made by the government there. Under fiscal incentives, Vietnam has given concessions on corporate income tax.
For the first four years, IT companies in Vietnam have been declared exempt from corporate income tax. Corporate income tax has been set at 5 percent for the next 9 years. After this period, the rate of corporate income tax will be set at 10 percent for the next two years, and the standard corporate income tax of 20 percent will be implemented from the 16th year of the company’s operation.
Vietnam can grant hi-tech companies tax exemptions and additional 15-year tax concessions if necessary if the country’s socio-economic conditions are unfavorable. In addition, Vietnam can waive the land rent for up to 15 years or for the duration of the entire project.
According to the provisions of ‘Decree 13’, the first legal collection on data protection, IT companies in Vietnam can get more concessions and financial support through the National Science and Technology Development Fund.
The National Innovation Center (NIC) under the Ministry of Planning and Investment of Vietnam has also been playing an important role in the development of ideas and startups born in the information technology sector of the country.
NIC helps information technology companies in Vietnam to expand their market. NIC is active in the environment of possible cooperation and business growth with companies from countries such as America, Japan, Korea, Singapore and other countries in Vietnam.
Due to this facilitation, the need for IT companies in Vietnam to search for markets is being reduced to a large extent. NIC has been organizing the Vietnam International Innovation Expo. Which helps the companies to deliver their products in the international market.
Sri Lanka
Sri Lanka is also making leaps and bounds in the information technology sector in a short span of time. There are more than 500 IT companies. Sri Lanka earned $440 million from exports in 2011 and earned $1.5 billion from IT services in 2023. Sri Lanka’s IT industry employs 1.5 million people.
After Sri Lanka revised the direct tax payable by IT companies, it seems that this industry has started to flourish. The Sri Lankan government announced concessions in 2011 by reducing the tax rate payable by IT companies. In 2011, corporate income tax was reduced from 35 percent to 28 percent. In addition, Sri Lanka announced that some investors will get zero rate tax benefits.
In 2012, the government of that country provided a four-year tax holiday to those who made new investments of more than 250,000 dollars. The Sri Lankan government has decided to announce additional tax exemptions for those who invest more than two million dollars. A company named Virtusa had availed the facility of tax holiday with the facility ending in March 2019. Virtusa was able to meet the target by enjoying the investment and employment criteria set by the Board of Investment of Sri Lanka.
Through the 2014 budget, the Sri Lankan government had announced that it would provide tax holiday facilities for 5 years to new IT companies. In addition, Sri Lanka decided to ‘cap’ the maximum corporate income tax rate at 16 percent. On the strength of which Sri Lanka’s IT industry is expanding further.
Sri Lanka, adding concessions on top of direct taxes, switched to indirect taxes. The Sri Lankan government announced VAT exemptions for certain IT services. Effective from January 2020 and April 2021, Sri Lanka has implemented a VAT exemption scheme for IT companies that meet certain criteria.
The Sri Lankan government formed an IT Advisory Committee. A committee has been formed with the participation of the government and the private sector to boost the country’s information technology industry. In which there are representatives of 9 private companies operating in the IT sector.
Similarly, according to the Sri Lankan President’s Office, the government has put forward a plan to build five technology parks in Sri Lanka nationwide. It is believed that this park will be a game changer to develop Sri Lanka as an IT hub. Which is said to play an important role in foreign investment in the IT sector as well as the emergence of new companies and job creation.
In addition, an ITC Agency (ICTA) has been set up for local public procurement of IT in Sri Lanka. ICTA is responsible for procurement of ICT related goods and services by the government. He looks after IT related tenders. This agency exercises exclusive rights to purchase products of local IT companies.
In the evaluation of the tender, up to 15 percent marks can be given to local companies. Similarly, it is not possible to purchase goods and services through local companies, and foreign companies have to be invited to contract, and a JV policy has been introduced with the participation of local companies as well. Which is expected to increase the experience and development of local companies.
Pakistan
According to the data of 2022, the number of manpower working in the IT sector of Pakistan is around 300,000. In the same year, Pakistan earned $2.65 billion from IT services exports alone. While this figure was only 440 million dollars in 2011. The number of IT companies in Pakistan is around 6000.
Pakistan also seems to be behind the development of the IT sector due to tax concessions. The Government of Pakistan has provided tax credit facility for export of software, information technology and IT enabled services. This facility is valid from July 2021 to June 2026.
IT startups registered with the Pakistan Software Export Board (PSEB) get a ‘tax break’ for the first three years.
The government of Pakistan has already announced a tax exemption on profits earned by venture capital and venture capital funds invested in the IT sector till June 2025. Pakistan has provided facilities for 100% foreign investment and profit repatriation in the IT sector.
Similarly, until 2026, IT companies registered with PSEB have been given the facility to pay 0.25 percent income tax and others only 1 percent.
PSEB has increased the number of Software Technology Parks from 8 to 30 across Pakistan. PSEB has been providing significant concessions on rent and internet bandwidth purchase for IT companies.
PSEB is building 40 software technology parks in urban areas of the country. It is developing an IT park in the metropolitan area of Pakistan. An IT park is under construction in the capital Islamabad. It will end next December. The IT Park to be built in Karachi is under study, the government of Pakistan aims to make it operational by December 2026. The Ministry of Information Technology and Communication of Pakistan has established the National Incubation Center and has incubated more than 1,300 IT-related startups so far.
Nepal Association for Software and IT Services Companies (NAS IT) also said that Nepal can take a big leap than the present if the government forms a separate IT board to promote the IT sector along with the tax incentive policy.
Nas IT Vice President Santosh Koirala has claimed that if the government implements the suggestions given by them, the country’s IT sector can export 7 billion and create 5 lakh jobs in the next decade.
Similarly, NAS IT treasurer Abhay Paudel said that Nepal can do more than the progress made by Bangladesh, Vietnam, Sri Lanka and Pakistan by allowing insurance of IT services and opening branches abroad.
According to the Institute of All-round Development Studies (IIDS), Nepal’s IT sector is booming Report was made public. IIDS estimates that Nepal has exported IT services worth 515 million US dollars.
106 IT companies, 14 thousand 728 IT freelancers and 51 thousand 781 Information Technology Enabled Services (ITES) have exported IT related services to different countries. According to IIDS, IT services exports increased by 64.2 percent in 2022 compared to 2021.
