E-trade license: an opening for boosting businesses

A trade license is a primary and mandatory requirement for starting a business in Bangladesh. The license is issued by the local government bodies of the respective areas. Every business entity must obtain a trade license from each local government body where it operates. Suppose a business entity has more than one place of business. In that case, it must obtain a trade license from each local government entity. It is issued for a year, and renewal is required annually for a business by an individual based on a specific locality.

It can be obtained for the business of sole proprietorship, partnership, and limited liability companies. The document is provided based on the Local Government (City Corporation ) Act 2009 and Municipal Taxation Rules, 1986, and the City Corporation Ideal Tax Schedule 2016. Local government bodies throughout the country provide trade licenses, including nine city corporations, municipalities of the concerned areas, Union Parishad, etc. Types of forms required depend on the nature of trade.

Application form charge is BDT 10, and License Fees range from BDT 100-BDT 40000, depending on the nature/type of business (information can be collected from the City Corporation/ Municipality/ Union Parishad office, etc.).

Except five-star hotels and other luxury facilities, trade license fees (except tax) are not very high, but the hassle the people face is in getting trade licenses is tiresome, and even the renewal process is often cumbersome. Given the problems, observers are suggesting several alternatives to trade license. It is noted that the Local Government Division of the ministry concerned has introduced e-trade license to reduce time, cost, and hassles involved in the process.

It is welcome to note that the introduction of the e-trade license has generated enthusiasm among businesses to get registration which is a good sign regarding reducing informality of the economy. One of the examples of benefits of e-trade license has been observed in the Mymensing City Corporation. After the elevation of the city’s position from municipality to a city corporation and expansion of the area, encouragement for getting a trade license has seen a significant increase. The city corporation officials stated that they are now providing license within a day if no inspection is required. They can complete the job within two days when an inspection is required, and they can issue around 25 licenses in a day, of which about 30 per cent is for women. Business entrepreneurs can now send their applications online and pay the required money as registration fees through bkash/nagad and other popular online gateways.

Narayanganj City Corporation also has introduced e-trade license and a simple single page trade license application form. On the other hand, from credible sources, it is learnt that Rajshahi City Corporation provides handwritten licenses for some wards. In some wards, Rajshahi City Corporation has started a computer-generated license on an experimental basis and will go for an e-trade license soon. Sylhet City Corporation has also introduced e-trade licenses.

Rangpur City Corporation is introducing an e-trade license; however, presently the process in being run manually. Inspection is a criterion for providing license for large business such as clinic, coaching centre, diagnostic centre, cold storages, brick kilns, etc. However, shop keepers, and grocery shops are given license without inspection. Renewal of licenses increases in July, whereas throughout the whole year, the requirement of trade licenses is low.

Local Government Division of the ministry concerned in Bangladesh has introduced the system. A number of video tutorials are available to understand the system of completion of application form, which is not too difficult. The only issue is that the required documents requested by the software would need to be included otherwise the payment option will not come. And the process of having a trade license will not be completed. However, applicants will get a tracking number. The applicant can save the file for any amendments, corrections, and changes and complete the documents required for getting the license. In case of discontinuation of any business, there is an option to surrender the license online.

People feel reluctant about renewing the trade license and the cost is often cited as the reason, as it is the only license for which fees for renewal and new license are the same. Be that as it may, trade license is an essential requirement for starting a business. For example, those who have a regular transaction with banks have to renew the license; otherwise, the business will not operate. So bankability of business and institutionalization of the system are options for formalizing businesses in the country.

Another critical area is taxation, a small shop owner whose license fee is only Taka 500, has to pay tax at source which is fixed at Taka 2000. This is the same for all and on top of it there is VAT at the rate of 15 per cent, so for a small shop owner, total fees along with tax impact is about taka 2575/- which is too high and thus many are reluctant to get license. Therefore, only opting for an e-trade license will not resolve the main problem; simplifying tax procedures is an area where proper attention is required.

From the point of view of small entrepreneurs, it is seen that getting a trade license is not that much complicated but because of lack of transparency and in some cases, information gaps, obtaining a trade license becomes cumbersome and expensive for businesses. Especially micro and small entrepreneurs are the worst sufferers. As a trade license is the initial requirement for starting any business, getting finance, and any other institutional support, the procedure of getting a trade license needs to be transparent, less costly, and prompt.

In Bangladesh, 19.5 days are needed for starting a business, where New Zealand requires 0.5, Canada 1.5, Hong Kong 1.5, Australia 2, Singapore1.5, Vietnam 16, Malaysia 17.5 days respectively. Bangladesh needs to reduce the time by at least to 10 days for sustaining business and attracting investment. The introduction of e-trade licenses in all city corporations will bring more transparency, and time for issuing and renewal will be reduced further.

In 2019, a well-known organization conducted a baseline survey in association with IFC and World Bank to measure time, cost and process requirements related to export and import for women-owned enterprises. While it was identified that a male exporter pays on an average BDT 10,204 for documentation and application cost and on an average 21 days is required for obtaining a trade license. Whereas, a female exporter pays BDT 1300 for the same process and an average of 11 days are required for obtaining a trade license. In case of renewal, a male importer takes 14 days to obtain a trade license with an additional cost of BDT 6917. In the case of a female, it takes 14 days with an additional cost of BDT 3739. In the course of discussion it was found that female business entrepreneurs are small and cannot afford additional workforce, they instead prefer to do their jobs by themselves, thus saving some money.

On the other hand, dependency on third-person increases cost. The introduction of E-trade licenses and their wider use would eventually reduce time, cost, and hassles. At the same time, the process of inspection would also need a specific guideline to be maintained by all concerned. Presently nine city corporations and several union parishad are providing license, along with a number of other services. Trade license is one of such services, however, revenue generated from this source is not significant. In case of Chittagong City Corporation it is seen that in 2013-14 from license, income generation was only taka 8.05 crore, while income from other sources such as taxation, the amount is taka taka 84.85 crore, another source is from estate, amount was Taka 36.10 crore.. Similar is the case of Gazipur City Corporation, in the year 2018-19 income from trade license fee is Taka 8.38 crore. For Rangpur City Corporation, income from the trade license is only taka 3-4 crore, rather they are earning more from advertisement, ownership license for automobile, rickshaws, etc. Income from trade license as per budget of Dhaka South City Corporation in 2019-20 is BDT 90, crore, which was BDT 76 crore in 2018-19. Similar is the case for Dhaka North City Corporation. Income from trade license as per budget of DNCC was BDT 100 crore in 2019-20 and BDT 60 crore in 2018-19.

Switching over to e-trade license can generate more revenue, and we believe with the digitalization in the near future a number of smart institutions and entrepreneurs will emerge and at the same time gradual flourishing of e-commerce business will happen.

Right now, there are some discussions getting momentum about looking for alternatives to trade license and in this respect, the revenue generation aspect came up. However, it is seen that in the context of revenue generation, issuing trade license cannot be considered as one of the main source of earning for the organization concerned. It is now high time to streamline the matter with the introduction of e-trade license. Business registration has been made simpler and almost instant in almost all countries, Bangladesh cannot afford to lag behind.

The writer is CEO, BUILD a Public Private Dialogue Platform works for Private sector Development. She can be contacted at [email protected]