Overall business climate in Bangladesh is deteriorating due to persistent complications with taxation and access to finance. The country scored 58.75 points in the Bangladesh Business Climate Index (BBX) 2023-2024, a decline of 3.21 from 61.95 points posted in 2022.
Published jointly by the Metropolitan Chamber of Commerce & Industry, Dhaka (MCCI) and Policy Exchange Bangladesh on Thursday, the BBX further revealed that the business atmosphere has improved in Dhaka, Rajshahi and Rangpur divisions.
However, Khulna and Chattogram divisions have witnessed a worsening business climate despite being the major business hub in the county, while the atmosphere remains unchanged in Sylhet, Barishal and Mymensingh divisions.
The report cited difficulties in getting licences, corruption in land offices, complications in the land registration process, weak infrastructures, electricity shortages, and VAT, tax hikes as key hurdles against running businesses smoothly.
Policy Exchange has recommended short- and mid-term initiatives to ease the process of doing business in Bangladesh.
Addressing the issue, Policy Exchange Chairman Dr M Masrur Reaz pointed out that the composite score 58.75 puts Bangladesh business environment in the category “Several Bottlenecks in Business Environment: Significant Efforts required.”
He recommended boosting regulatory service quality or effectiveness of reform to improve the climate, adding that ultimately such matters depend on field level service providing government agencies.
Addressing the programme as chief guest, Private Industry and Investment Adviser to Prime Minister Salman F Rahman said, “I am disappointed about the country’s decline in this index. Taxation is a big problem in Bangladesh.
“I have always been in favour of increasing the tax net and reducing the tax rate.”
The former business leader and BEXIMCO Group vice chairman pointed out, “Previously, the World Bank used to publish this index globally. It is good that it is now being released through a domestic initiative.
“The Bangladesh Investment Development Authority (BIDA) should read this report in detail and point out where there are problems, and what initiatives are needed to resolve these issues.”
He then added, “There might be some reform-related issues, including taxation, in the upcoming budget.”
What did the index show?
The BBX prepared this index based on a survey in 12 sectors – agriculture and forestry, construction, electronics and light engineering, financial intermediaries, food and beverages, leather and tannery, pharmaceuticals and chemicals, housing, ready-made garments, textiles, transportation, retail and wholesale trade.
The index considered 11 pillars, such as Starting a Business, Access to Land, Availability of Regulatory Information, Infrastructure, Labour Regulation, Dispute Resolution, Trade Facilitation, Paying Taxes, Technology Adoption, Access to Finance, and Environmental Regulations and Standards included for 2023-24 index.
Indicators such as starting a business, availability of regulatory information, infrastructure, labour regulation, dispute resolution, paying taxes and access to finance have deteriorated in 2023, compared to 2022.
Japan External Trade Organization (JETRO) Country Representative Yuji Ando said, “Sixty-two per cent of Japan’s investors in Bangladesh want to expand their businesses. However, their key hurdle is the unclear legal system of Bangladesh, so a legal reform is needed.”
Salman F Rahman however believes that legal issues are not a big problem.
Discussing access to finance, he said, “Even though the economy of Bangladesh has grown so much, the capital market has not grown accordingly. This market is a good source for raising investment capital, and the government is working on its development.”
Key constraints in doing business
Starting a business is difficult as multiple government agencies are engaged in the licensing process. There is also the increased cost of trade licence, informal payments, and weak coordination between agencies.
In terms of access to land, the key obstacles are a high number of bank drafts required during land acquisition, corruption in the land office, and the long process of land transfers.
The businesses are suffering from frequent power outages, which are causing infrastructural constraints. Besides low maintenance of the sewerage system by government agencies and high cost of logistics and raw materials are the problems.
Reaz recommended that infrastructure development be more targeted towards business competitiveness, adding that sustainable operation of infrastructure requires adequate attention.
Frequent and arbitrary increases in tax and VAT rates and the complicated and time consuming process of filing taxes are obstacles in taxation, the report said.
In this context, the report recommended simplifying the tax reporting forms, fully implementing the new VAT Law which makes the VAT refund process more efficient, and modernising the tax administration.
Availability of regulatory information, high government charges for essential utilities, businesses not given prior notice by government agencies regarding any regulatory changes and websites and guidelines are not always up to date.
When it comes to dispute resolution, businesses are facing complicated court procedures and long wait times, and shortage of manpower – especially judges and dedicated lawyers. Resolving commercial disputes is time consuming and costly.
The report added that the ongoing macroeconomic challenges clearly had an adverse impact on the business environment.
Sectors, such as construction, chemicals, pharmaceuticals, and ready-made garments (RMG), have been facing additional challenges in starting businesses due to the involvement of multiple sector-specific regulators.
Metropolitan Chamber of Commerce and Industry, Dhaka (MCCI) President Kamran T Rahman said, “The index provides us with valuable insights regarding the economic environment, investor sentiment, regulatory framework, and overall business condition.
“It helps us to make proper decisions, strategic planning, and achieving sustainable growth.”
