Complex taxation, finance key barriers to businesses

A complex taxation system, challenging access to finance mostly for small entrepreneurs, and a lengthy and difficult land acquisition process are key constraints in doing business in Bangladesh, despite slight improvements in the business climate indices.

These are the findings of “Bangladesh Business Climate Index (BBX) 2022-23” unveiled at an event in Dhaka’s MCCI auditorium on Thursday. The BBX – which has been developed for two consecutive years – was introduced in 2021.

The Metropolitan Chamber of Commerce and Industry (MCCI) and research organisation Policy Exchange Bangladesh (PEB) jointly prepared the index based on a survey of over 518 qualified responses taken in the July-September period last year.

Aside from recommending improvement in key indices, experts at the event underscored the need modernisation and upgradation of websites of all ministries and departments to ensure the availability of latest data on trade facilities for entities from both home and abroad.

What’re the survey findings?

Discussing the survey findings, PEB Chairperson Masrur Reaz said, “Bangladesh has shown improvements in the doing business environment by scoring 61.95 out of 100 in 2022, which was 61.01 in 2021. However, significant efforts are still required in this sector.”

The Bangladesh Business Climate Index (BBX) is based on 10 pillars – Starting a Business, Access to Land, Availability of Regulatory Information, Infrastructure, Labour Regulation, Dispute Resolution, Trade Facilitation, Paying Taxes, Technology Adoption, and Access to Finance.

These pillars contain a total of 35 sub-indicators which have been used to calculate the index.

The survey findings show that the Access to Land indicator dropped by 9.90 per cent to 53.07 in 2022, compared to 58.90 in 2021. Similarly, Paying Taxes declined by 19.66 per cent to 55.21 in 2022, from 68.72 in 2021.

Meanwhile, the Access to Finance indicator came down to 30.65 per cent to 35.22 in 2022 compared to 50.78 in 2021.

Dr Masrur said, “The informal payment required, lengthy land transfer, and involvement of intermediaries are key constraints for Access to Land pillar, while time consuming compliance, high-corporate tax, low tax education and weak taxpayer services are major challenges for Paying Taxes pillar.

“Besides, access to credit process complex, rate capping led to credit rationing, and complex documentary requirements are constraints in the Access to Finance pillar.”

The Starting a Business pillar improved by 2.72 per cent from 68.91 in 2021 to 70.78 in 2022.

Availability of Regulatory Information went up 21.77 in 2022 from 59.83 to 72.85. Infrastructure index improved 3.43 per cent in 2022 from 72.02 scores to 74.49 scores compared to its previous period.

The report also showed that Labour Regulation improved by 12.13 per cent to 74.40 in 2022 from 66.35 in 2021, Dispute Resolution up 11.75 per cent to 64.24 in 2022 from 57.48 in 2021, and Trade Facilitation up 18.58% to 58.61 last year from 49.43 in 2021.

Besides, Technology Adoption improved by 5.03 per cent to 60.60 in 2022 from 57.70 recorded in 2021.

‘Significant bottlenecks’

Dr Masrur said, “Over 60 per cent of respondents mentioned that they found significant bottlenecks in filing and paying both income tax and VAT in Bangladesh. Seventy-six per cent of the respondents mentioned that they experienced an adverse impact on their businesses due to the current tax environment in the country.

“About 87 per cent of the respondents mentioned that they found significant challenges in accessing bank loans and financing in Bangladesh. The challenges were more exacerbated for micro, small and medium enterprises.”

Speaking at the event, MCCI President Md Saiful Islam said, “There are many things going on simultaneously around us, like the USD crisis, soaring global energy prices, overall inflation, a pandemic, and the Russia-Ukraine war. This makes the prevailing situation quite tricky.

“The MCCI has always believed in being the voice of responsible business. However, gauging the business climate of a country is much required to assess its future economic prospects. We can assess the probability of businesses and investments flourishing from this index.”

He added, “Previously, we have seen other indices, including the World Bank’s Ease of Doing Business. Since its discontinuation a few years back, we have felt the need for a similar index to fill this gap.”

Executive Chairman of Bangladesh Investment Development Authority (BIDA) Lokman Hossain Miah said, “We are ready to offer our highest assistance to all investors.

“But everyone must adhere to the official system, and work together to achieve the status of a developed country by 2041.”

Foreign Investors Chamber of Commerce & Industry (FICCI) President Naser Ezaz Bijoy said, “At first, Bangladesh must fulfill the requirement of foreign investors to bring more Foreign Direct Investment (FDI). “Foreign investors search websites to gather information before investing in a country. We have to work on this segment. Besides, logistical issues at ports and airports must be improved to reduce any waste of time.”

DCCI President Md Sameer Sattar underscored the need to form a separate commercial court to directly address dispute resolutions.

Commerce Minister Tipu Munshi said, “If foreign investors face problems in our country, they will not bring any benefits. So, we all have to work together and resolve all problems, and then investment will come automatically.

“We are very smart while speaking, but not while working.”

The minister hoped that Bangladesh would be able to earn $100 billion from exports by 2030.

Which districts, sectors fared better?

In geographic distribution, Mymensingh district recorded the highest score of 65.23, while Rangpur slumped down to the bottom at 55.76 in 2022. In the index, Sylhet scored 65, Chattogram 60.81, Rajshahi 59.57, Dhaka 58.61, Barishal 58.49, and Khulna 57.97.

The construction sector scored 66.02 in the doing business environment, leather and tannery sector scored 65.33, food and beverage 62.62, readymade garment (RMG) 62.31, transport, storage & communication 61.93, electronics & light engineering 60.93, financial intermediaries 60.82, real estate, renting and business 59.33, wholesale & retail trade 58.84, agriculture and forestry 58.22, pharmaceuticals & chemicals 52.24, and textile 48.02.

The BBX introduced a new innovative business environment index for Bangladesh, which is unique in providing private investors and government agencies with timely and detailed data on regulatory and other barriers to doing business.

Foreign secretary Masud Bin Momen, and BUILD chairperson and also a former MCCI president Nihad Kabir spoke at the launching event among many others.