Ongoing Policy Reforms
Overview of Ongoing Policy Reforms
Issue
BUILD for Sustainable Consumption and Production
Embracing the SDG 12, Sustainable Consumption and Production (SCP) as a guiding principle could significantly contribute to a more environmentally friendly and healthy society and contribute to the country’s economic growth and development. To achieve this, a collective conscious decision to develop a sustainability transition approach of the society as a whole is crucial. Two significant studies by BUILD in collaboration with GIZ, “SCP Assessment Report for Bangladesh” and “Sustainable Consumption and Production Roadmap/Vision 2030 Document for Bangladesh”, are such an attempt to guide the path of how Bangladesh can move towards mainstreaming SCP.
Issue
Incorporating Gender Best Practices Gender-Based Violence
BUILD, in partnership with the Centre for Gender and Social Transformation at the BRAC Institute of Governance and Development (BIGD), are jointly conducting a study on “Incorporating Gender Best Practices Gender-Based Violence (GBV) and in BEZA’s Institutional Policy”. The World Bank Bangladesh Gender Platform supports this study. The study’s objectives are to review Bangladesh Economic Zone Authority (BEZA) ‘s institutional policies and procedures to recommend measures related to gender mainstreaming and prevent and appropriately address incidents of gender-based violence (GBV) in BEZA and industries/entities established in economic zones under BEZA. For the Economic Zones to fulfil their potential for creating employment for women, it is essential to ensure gender mainstreaming in institutional structures and processes to address constraints to women’s participation and incidents of gender-based violence (GBV) and childcare needs.
The research team will meet stakeholders to conduct the study, which will help BUILD and BIGD Joint Research Team to suggest fruitful recommendations for incorporating policies for gender best practices and addressing Gender-Based Violence (GBV) in BEZA’s institutional policy.
Issue
Survey on Regulatory Unpredictability in Business Decision
The survey will seek to collect information on how regulatory uncertainty affects investment decisions by businesses. Such data can help reveal the costs of regulatory uncertainty to individual businesses and the economy and thus to society. Better knowledge of such expenses may encourage the government to take actions to reduce uncertainty. This questionnaire has been designed in a way that will be helpful to retrieve the findings on the investment of the entrepreneurs in business plans, reasons for deviating from implementation plans, reasons for not planning any investments at all and the economic consequences of not investing, such as the impact on job creation, export, productivity and investment.
The scope of the survey is to collect opinions of all kinds of entrepreneurs Dhaka, Khulna, and Chittagong. The survey will accommodate a certain percentage of women entrepreneurs. Sectors to be covered are RMG, leather, leather goods, plastic, light engineering, food, furniture, information technology, machinery and equipment, transport, consulting, and advisory services.
Issue
Promotion of Environment-Friendly Capital Machinery in Bangladesh — Policy-Related Challenges and Opportunities
The import of capital machinery is a major indicator of industrial activity in the foreseeable future. In 2017-18, capital machinery worth USD 4.48 billion was imported in Bangladesh, which was 24% higher than the previous year. The government has imposed a 0 to 7.5% tariff on capital machinery imports for different sectors and locations of industry. When the private investment to GDP ratio grows in tandem with capital machinery import, industrial activity can be taken to be growing. Capital machinery is one of the materials that ensures the sustainability of the industry, so the government should promote green/environment-friendly capital machinery to ensure the sustainability of the industry and the environment. To find out the policy gaps in promoting green/environment-friendly capital machinery, BUILD is going to conduct a research study that would be brief scanning current policies and incentives focused on capital machinery along with BCAS as a component of the Through Climate Finance Transparency Mechanism (CFTM) project a study would draw on the existing literature on policy gap in the issue. Interviews with a few key informants will be conducted – including officials from line ministries, business leaders, experts, and civil society leaders.
Issue
Reduction of Customs Duties on Capital Machinery
BUILD would undertake a brief impact evaluation of reducing customs duty and other relevant taxes on selected environment-friendly capital machinery, especially for export-oriented enterprises. The government has granted a specific reduction in customs duty and exemptions on a number of capital machinery and parts. However, the list of products as well as the duty rates have changed in the last few years. The study would briefly discuss the changes and seek to identify potential impact on businesses.
Issue
Guidelines for Export Subsidy/Cash Incentives for Export Oriented Industries of Bangladesh
In order to encourage exports in accordance with the export-led economic growth strategy of the country, the Government of Bangladesh provides export incentives to selected export sectors. The sectors to enjoy such cash incentives and the respective rates to be provided are updated every year through circulars issued by Bangladesh Bank. The government has increased the amount of export subsidy/cash incentives by every year. For example, in 2017-18, the government provided BDT 45 billion as export subsidy/cash incentives to the exporters, which was BDT 43.95 billion in 2016-17, BDT 40 billion in 2015-16 and BDT 35 billion in 2014-15. However, unfortunately, Bangladesh Bank has found that some exporters, with the help of their local banks, withdrew export subsidy/cash incentives by violating the government’s rules. This violation of rules causes a question to the overall process of the disbursement of export subsidy/cash incentives.
BUILD has planned to prepare a report on “Guidelines for Export Subsidy/Cash Incentives for Export Oriented Industries of Bangladesh” to increase the transparency of the disbursement process of export subsidy/cash incentives.
Issue
Simplification of Policies for Easy Availability of the Official English Version of Laws and Rules for Foreign Investors
“Simplification of Policies for Easy Availability of the Official English Version of Laws and Rules for Foreign Investors” is one of the policy papers initiated by BUILD. JETRO requested the Prime Minister’s Office (PMO) for the easy availability of the official English version of 28 laws and rules of Bangladesh. The non-availability of the official English version of these laws and rules hinders foreign investors. All the government offices in Bangladesh are constitutionally bound to publish laws and rules in the Bangla version. On the other hand, the government of Bangladesh is highly interested in supporting foreign investors. In this context, PMO requested BUILD to submit a report on this issue to support Japanese investors to tackle this problem. BUILD has taken the initiative in preparing a position paper for the simplification of policies for easy availability of the official English version of laws and rules for foreign investors, which will be presented in the 4th meeting of Working Group on Improvement of Investment Climate at PMO and in the upcoming meeting of Trade and Investment Working Committee as well.
Issue
Timely Publication of Trade-Related Statistics
JETRO requested Prime Minister’s Office (PMO) to take initiatives for the timely publication of six trade-related statistics, namely Foreign Trade Statistics of Bangladesh, Bangladesh Economic Review (English version), Labour Force Survey, Household Income and Expenditure Survey, Statistical Year Book Bangladesh and Annual Import Payments. In this context, PMO requested BUILD to submit a report to the PMO detailing the sources of trade-related statistics, publication status, time lag, and BUILD recommendations to reduce the time lag. BUILD has taken the initiative in preparing a report on the timely publication of trade-related statistics, which will be presented in the 4th meeting of Working Group on Improvement of Investment Climate at PMO.
Issue — Taxation
Corporate Income Tax (CIT)
The general objective of the study is to create an attractive, equitable and competitive tax regime and to harmonise the incongruities in tax structure in Bangladesh for the national and as well as for the foreign companies. The study focuses only on the CIT charge under the prevailing tax regime in Bangladesh.
Issue — Taxation
Turnover Tax
BUILD is working on the rationalization of the Turnover Tax system. BUILD will advocate eight recommendations in the PSDPCC, including the insertion of micro-industry in the Turnover Tax benefit, simplification of enlistment for the turnover tax benefit, and a clear definition of the related policies.
Issue — Taxation
Duty Drawback Procedure
BUILD is researching the simplification of the Duty Exemption and Drawback process, currently followed by Duty Drawback and Exemption Office (DEDO).
Duty drawback refers to the refund of duties and indirect taxes paid for inputs and utilities for exports. Import duties, VAT, supplementary duties and other duties paid on imported raw materials can be drawn back by firms under the duty drawback facility. Every month, a large number of applications are rejected due to non-compliance. On top of that, a massive number of files remain unprocessed and unattended for extended periods due to a lack of clarity in concerned policies. Slow processing time and ambiguity deter many exporters from applying for reimbursements, even in legitimate cases.
In Bangladesh, the amount received as duty drawback is subjected to tax, as if it were an income or profit. In what appears to be a policy paradox, exporters are required to pay corporate tax on the amount of refund they receive on duty. Moreover, exporters who operate businesses under Bonded Warehouse license, EPZ, 100 per cent export-oriented and 100 per cent deemed exporters, are qualified to get drawbacks against the payment of VAT on utilities. However, exporters who get cash incentive cannot apply for drawback from DEDO and are not even entitled to get drawback against VAT paid on utilities.
Issue — Taxation
Policy Support for Deemed Exporters
According to the current Income Tax Ordinance 1984, Clause-53 (BB), 0.80% Advance Income Tax at source is considered as final tax collection from business sectors like knitwear and woven garments, terry towel, garment accessories, jute goods, frozen food, vegetable, leather goods, packaged food. But the squarely related sectors like knitting, dying industries and associated organizations involved in the business (through the Back-to-Back L/C) who can be considered as Deemed Export cannot avail this benefit.
Issue — Taxation
Simplification of Capital Machinery Re-Import
Through this exercise, BUILD intends to reduce the procedural complexities of re-sending imported capital machinery and spare parts back to the manufacturer for repair/refill/replacement and bringing them back. According to the Import Policy Order (2013-2015) 14(10), for sending of machinery/equipment/cylinder for repair/refilling/maintenance to another country, Export-Cum-Import Permit/Permission is to be taken from the Import Controlling Authority on submission of bank guarantee of equivalent value of the goods.
When imported machinery or spares are damaged or become out-of-order, firms are bound to send those to the foreign manufacturer for repair or free replacement within the guarantee period. In many cases, these machineries cannot be repaired locally, nor can the problems be diagnosed domestically due to lack of expertise, technical know-how or workshop facilities within the country. Massive cost implications, be it the cost of the machinery itself or the loss incurred in production hold-ups with each passing day, make it absolutely critical that export cum import occurs without undue process delays. The current process necessitates the involvement of CCI&E, BOI, commercial banks, the pre-shipment inspection company and customs commissionerate, with the entrepreneur/firm playing a coordinating role. In several cases, the legal procedure of sending the pieces of machinery abroad and re-importing could take over 2-3 months.
Issue — Financial Sector Development
Financing Issues Faced by the Shipbuilding Sector
Shipbuilding is a unique industry because a ship is sold before the construction begins, and each vessel is custom made for the owner. The lead time is anywhere between 1 year to 3 years for the delivery of a new ship. Like all other industries, shipbuilding firms require “short term/working capital” financing to procure raw materials and meet overhead expenses during the lead time. Since the “short term” nature of the working capital requirement is pretty “long” in this case, it cannot be accommodated into Bangladesh Bank’s regulation to limit short term financing by banks to less than 360 days. Banks need to seek approval from Bangladesh Bank on case to case basis if they intend to match the payment cycle of the shipbuilding firm and offer working capital financing for a duration exceeding 360 days.
Each export LC needs to be backed by a Performance Guarantee from the exporter’s bank. Export receives the payment against any order in a staggered manner (an initial 10% of the amount is due in the form of advance payment against bank guarantee). Bank guarantee is considered a significant cost hurdle, especially for the export-oriented shipbuilding industry, as foreign buyers do not accept bank guarantees from local banks. So local banks have to contact their foreign counterparts on behalf of the exporter for a counter bank guarantee which ultimately increases the processing cost, and thus the cost of manufacturing ship increases. According to a study by BFTI, local shipbuilders are paying approximately 7.6 per cent of the total contract value for obtaining these bank guarantees.
Issue — Financial Sector Development
Eligibility Criteria for Export Development Fund
Export Development Fund (EDF) loans offered by Bangladesh Bank (at LIBOR +2.5%) are only available to the textiles sector. Recently, member firms of the BGAPMEA have also been included in this list. According to the master FEPD circular issued in December 2009, eligibility criteria are vague and need clarification. According to the circular, input imports by manufacturer-exporters against which an Authorized Dealer Bank seeks EDF loan must be in full compliance with the value addition criteria and other requirements of the government’s Import Policy Order (IPO) in force, as well as with foreign exchange regulations and instructions laid down in the GFET 2009 and subsequent circulars of Bangladesh Bank.
The government of Bangladesh has recently increased EDF allotment from USD 600 million to USD 800 million. BUILD is assessing the utilization rate of EDF and recommends more export sectors to be eligible for EDF.
Issue — SME Development
Issuance of Utilization Permission (UP) for Plastic Sector
Recently, BUILD has conducted a qualitative research on chalking out the regulatory constraints faced by the plastics sector of Bangladesh. BUILD reached out directly to manufacturers and identified the regulatory constraints. Delays in the issuance of Utilization Permission by the Customs Bond Commission (CBC) rate has been identified as a pressing problem.
In order to adjust imported raw materials against different export orders, exporters require Utilization Permission (UP). For plastic goods exporters, UP is currently issued by the CBC, whereas, for the RMG sector, it is provided by the private sector associations, namely BGMEA and BKMEA. For plastic goods, if this service is transferred from CBC to the concerned private sector associations (BGAPMEA and BPGMEA), importing raw materials for export will be much easier, faster, and cheaper.
Issue — SME Development
Policy Simplification for Supermarkets
Supermarkets (SMs) are a fast expanding sector, recognized as Industrial Service by MOI as per Industrial Policy 2010. Industry turnover stands at BDT 15 billion, with BDT 300 million paid in VAT (according to Supermarkets Owners’ Association). New outlets are emerging in Dhaka and district towns, in line with the changing consumption patterns, urbanization, the emancipation of women, rising per capita income and rising consumer confidence in products available through SMs. About 2% of the total FMCG sales in Bangladesh occur through SMs, compared to about 10% in India.
BUILD initiated research to identify the regulatory hurdles faced by the SMs and identified the following issues. Around 50 food products require two separate licenses, issued by BSTI and City Corporation. BSTI and DCC administer the SMs separately to check whether the food products carry both certifications. Most manufacturers/ suppliers of these 50 food products are not aware of these dual license requirements. SMs end up paying fines for having these food items on their shelves.
Several kits are available to measure toxic materials, carbide, and harmful chemicals that are reported to be mixed in the food products. There is no recognized Authority with certificates from the government organization to certify the calibration rate of available kits and instruments to measure the presence of these toxic elements.
Implementing authorities are not correctly defined: Ministry of Health and Family Welfare as well as Ministry of Local Government, Rural Development and Cooperatives both implement Bangladesh Pure Food (Amended) Act 2005, Bangladesh Pure Food Rules, 1967, BD Penal Code, 1860, and Iodine Deficiency Disorders Prevention Act, 1989. There are more such laws and regulatory authorities. Cross-country comparison reveals that in India and Thailand, food-related issues are being processed under a single ministry.
SMs have to pay 4% Trade VAT, while other shops pay VAT at a flat rate of 1.5%. Consumers end up paying higher prices for purchasing products from SMs, which affects the demand for the products sold through SMs and hampers growth. Previously, Trade VAT was 1-1.5%, but it has been increased further on products sold through SMs.
Issue — SME Development
Mandatory Certification Standards for Plastic Products
BSTI is responsible for certifying product standards in Bangladesh. However, standards for several plastic consumer goods are yet to be developed by BSTI, posing problems for the exporters of these goods. Many plastic goods producers cannot participate in national and international tenders as they fail to submit the standard certification along with the bid.
Issue — SME Development
Policy Simplification for Manufacturing of Boilers in Bangladesh
Boilers are one of the most essential and widely used industrial components used to generate heat or energy. Some local manufacturing units produce Boilers on a limited scale. Locally made boilers are more popular as a result of after-sales services. However, local manufacturers face stiff competition from cheap imported boilers, often of inferior quality. Local manufacturers also suffer from the absence of appropriate policy guidelines and unjust tariff structure on imported raw materials.
The Boiler Act 1923 needs to be updated to resolve the following issues, such as accounting for technological advancement and inclusion of appropriate inspection authority as an annexe with this Act. There are 30-35 boiler inspection authorities worldwide; this list needs to be circulated. Another is setting up a criterion of producing boilers for small agro-industries like rice millers, poultry feed firms, food industries. Also, it is to be ensured that the board meetings of the Boiler Board appointed by the government are held regularly so that license approval and registration procedures are not delayed. Lastly, the inclusion of private sector representative in the Boiler Board, as has been the case in the neighbouring countries, is to be ensured.
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