Imports dominate kids’ dresses

Parents along with their children are hitting the capital’s shopping centres as they look to purchase their desired outfit for Eid-ul-Fitr, the biggest Muslim festival. One such unit was Sabina Akter, who came to Mum & Little Ones on the Satmasjid Road in Dhanmondi with her husband and four-year-old daughter. “My daughter likes fancy dresses and shoes,” said Akter. After combing through a bunch of dresses brought in from Thailand and China, the family picked a frock with cartoon characters.

After all, they did not have much choice but to go for an imported product as 80 percent of the market for childrenswear is dominated by foreign ones. “Customers prefer clothes from India, China and Thailand,” said Ashfak A Hai, managing director of Mum & Little Ones, which also sells toys. Local childrenswear are so out-of-date that they do not have any takers, he said. But a few local brands such as Aarong and Infinity are also drawing in crowds thanks to their tasteful designs.

At noon yesterday, hundreds of shoppers could be found at the Aarong store in the capital’s Bashundhara City, a shopping mall. One of them was Zakaria Shahin, a private sector employee, who came to the store to buy shoes for his seven-year-old son. “I always shop at Aarong as its designs and models represent our Bengali culture,” he said. Speaking to The Daily Star at the same outlet, Md Abdullah, a banker, said the quality of the products at Aarong is good. “But the price has skyrocketed.” The lower-income people, however, rely on the makeshift shops set up on footpaths to dress their children on Eid. The shops sell mostly locally-produced clothes, according to market insiders.

Shops at New Market and Polwel Super Market also cater to shoppers belonging to the low and lower-middle income groups, said Safiul Azam, a shop owner in the capital’s Uttara.

Experts call for banking reform commission

Experts yesterday demanded that the upcoming budget contain a clear indication that a “banking reform commission” would be immediately formed to address the prevailing vulnerable situation in the banking sector.

“The banking sector is passing a severe crisis moment due to different scams,” said Ahsan H Mansur, executive director of Policy Research Institute (PRI), while moderating a dialogue, “National Budget 2018-19: Thoughts at the last moment”. “So a banking commission is required to save the sector as it is an important engine for the economy,” he told the event organised by the PRI at Golden Tulip The GrandMark Dhaka in the capital’s Banani.

Echoing Mansur, Md Mozibur Rahman, former chairman of Tariff Commission, said, “If the sector continues to go through this situation for long, it would lead to the capsizing of the economy.” Stating that inefficiency is the main obstacle to the budget’s implementation, he demanded a special allocation for efficiency improvement, reasoning that training was required to develop highly skilled manpower.

Ghulam Rahman, president of the Consumers Association of Bangladesh (CAB), said local markets increased prices in response to that in the global market but the effect was not immediate when prices went down.

He lauded government efforts in the last couple of years to bring a stop to a tendency to hike prices of essential commodities right after the budget was announced.

Mustafizur Rahman, distinguished fellow of the Centre for Policy Dialogue, expressed unhappiness over the implementation rate of fast-track projects, saying they were slow just like the annual development programme.

The government allocated an estimated Tk 260,000 crore for 10 fast-track projects and though allocation for those increased in phases, implementation efficiency did not, he said.

He suggested improving institutional capacity to implement the mega projects while forming a public expenditure commission to decide on the type of programmes to undertake.

“The government should review the incentive structure in terms of strategic industrial and trade policy,” he said.

Rahman also suggested allocating a particular amount in the budget giving priority to a special economic zone so that it becomes exemplary for others.

Suhel A Chowdhury, a former commerce secretary, said there was a lack of efficient manpower in the government and efficient officials were not in the proper places.

He also blamed inefficiency of the state machinery for the budget not being implemented properly.

Asif Ibrahim, vice chairman, Newage Group of Industries Bangladesh, said the private sector was worried over the increase in bank interest rate and this was a bad sign for the economy and investment.

The one-stop service of Bangladesh Investment Development Authority was also not efficient and this might be a bar to achieving the investment target, added Ibrahim, also a former president of the Dhaka Chamber of Commerce and Industry. He said the private sector was interested in paying taxes but were put off by the tedious payment procedures.

Muhammad Abdul Mazid, former chairman of the National Board of Revenue (NBR), said there should be coordination between the tariff and customs policies so that businesspeople face no confusion and problems.

Zaidi Sattar, chairman of PRI, stressed the need for export oriented growth. He said export-GDP ratio was declining and export growth has come down to a single digit. “We need 12 percent export growth to reach the 8 percent GDP growth target by 2021,” he said. Siddiqur Rahman Chowdhury, a former finance secretary, said there were a number of commitments in the last budget but there was no implementation afterwards. He said budgets should be big and ambitious but backed up with credibility.

Shamsul Alam, energy adviser of CAB; Faisal Ahmed, chief economist of Bangladesh Bank; Ali Ahmed, chief executive officer of Bangladesh Foreign Trade Institute; Nazneen Ahmed, senior research fellow of Bangladesh Institute of Development Studies, and Sadiq Ahmed, vice chairman of PRI, addressed the programme.

BB may relax foreign loan cap for private sector

The central bank mulls over relaxing the existing interest cap on private sector foreign loans to help businesses enjoy uninterrupted external borrowing, said a top Bangladesh Bank official yesterday. At present, businesses are not allowed to take foreign loans at interest rate higher than 5 percent including the London Interbank Offered rate (LIBOR). Libor has been on the rise since February 7, reaching 2.31 percent, the highest since 2008, which is making it difficult for local businesses to maintain the interest rate cap.

Following requests from businesses and bankers, the central bank has decided to look into the matter, said BB Deputy Governor Ahmed Jamal at a roundtable on external private commercial borrowing by Bangladeshi firms.

The Policy Research Institute organised the roundtable at its office in the capital.

“The country’s image will diminish if any borrower fails to repay the loan,” Jamal said.  The Bangladesh Investment Development Authority, the sole authority to give approval to term loans for the private sector, has recently proposed to the central bank to allow businesses to enjoy three-month foreign loans without taking any prior approval. The central bank is scrutinising the issue positively as part of its ongoing programme to further liberalise the country’s foreign exchange regime, the BB deputy governor said. The authority concerned should increase the cap to LIBOR plus 4.50 percent, said Ahsan H Mansur, executive director of the PRI.

The 5 percent all inclusive cap on foreign lending may have also contributed to the decline in disbursement of foreign loans in recent times, he said. Three factors — complexity in the application process, involvement of uncoordinated agencies and applications of arbitrary all-in cost cap — appear to be discouraging entrepreneurs from making use of foreign borrowing. On average, the private sector utilised less than 50 percent of the approved limit on foreign borrowing because of the complexities, Mansur said. Emphasis should be put in giving loan approvals in due time as the country will need to increase private sector investment by at least 5 percentage points from the existing 22-23 percent of GDP, Mansur added. The authority concerned should take prudential regulations for private sector foreign loans considering its sensitiveness, said Naser Ezaz Bijoy, chief executive officer of Standard Chartered Bangladesh.

The Asian economic crisis of 1996 emerged because of excess borrowing by businesses from external sources, he said. The country’s entrepreneurs have been facing infrastructural and energy crisis for a long time, which have discouraged them to set up new plants and expand existing ones, said MA Jabbar, managing director of DBL Group.

“We need more fund and the authority concerned should take measures to ensure foreign loans without any complexities,” he added. The country’s banking sector is now facing an acute liquidity crunch, so foreign loans will help in meeting the growing credit demand by the private sector, said Uzma Chowdhury, corporate finance director of Pran-RFL Group. Sadiq Ahmed, vice-chairman of the PRI, moderated the dialogue, while Zaidi Sattar, chairman of the PRI; Faisal Ahmed, chief economist of the central bank; Masrur Reaz, senior economist of the International Finance Corporation; and Arif Dowla, managing director of ACI Ltd, also spoke.

High corporate tax a bane for businesses

Bangladesh has one of the highest corporate tax rates and complex tax systems in the world that act as a disincentive to investment, analysts said. The tax administrator collects corporate tax in eight categories. Telecom operators, banks and financial institutions and cigarette manufacturers—the main sources of taxes—pay the tax at the highest rates of 40 percent to 45 percent. The lowest rate is enjoyed by the jute millers at 10 percent and apparel makers at 12 percent. In general, the corporate income tax rate for non-listed companies is 35 percent and 25 percent for listed companies.

Bangladesh’s corporate rate is high and complex as there are a number of slabs, said Zahid Hussain, lead economist of the World Bank’s Dhaka office. “High tax rate encourages evasion and corruption. It also reduces profit and thus investible fund.”

The rate of corporate tax in Bangladesh is higher than the Asian average of 21 percent and the global average of 24 percent, according to KPMG, a global network of professional firms providing audit, tax and advisory services. Bangladesh’s tax rates for companies are also higher than that of Vietnam, Thailand, Malaysia, China, Indonesia, Sri Lanka and Pakistan. Vietnam and Thailand charge 20 percent tax for companies. It is 24 percent in Malaysia and 25 percent in Indonesia.

Pakistan and Sri Lanka’s rate is less than Bangladesh’s rate. India’s basic corporate tax rate stands at 30 percent, but the effective rate goes up to 35 percent for domestic companies after adding surcharge and education fees, according to KPMG.

Uzbekistan, Montenegro and Hungary have single-digit corporate tax rate of 7.5 percent. Lower corporate tax rate is one of the main drivers of economic development for Ireland, said Ahsan H Mansur, executive director of the Policy Research Institute.

“We have to be at par with similar countries. Compliance will rise and tendency to hide incomes will reduce if the tax rate is reduced,” he said, calling for a cut in corporate tax by 2 percentage points annually in the next five years. He said corporate tax rate usually hovers between 20 percent to 25 percent in developed and emerging nations. From that perspective, 35-37 percent rate is quite high, he said.

The former economist of the International Monetary Fund said the government should unveil a plan on corporate tax measures so that existing and prospective investors can predict. Business chambers have been demanding a cut in the corporate tax for the last several years. Some tax officials, however, said although some sectors face more than 40 percent tax, the effective rate, in general, is lower if exemptions, discounts and special benefits are taken into account.

For example, the corporate tax rate for power, software and IT firms is zero.

Tax break is offered to income from investment in the export processing zones. Firms also enjoy tax break in the first three years of operations in economic zones and hi-tech parks. So, it is tough to impose a sudden cut in the corporate tax rate because of its impact on revenue collection, said taxmen. The National Board of Revenue cut tax for companies twice over the past decade. It, however, has not carried out any study on the impact of the cut on investment and compliance, officials said.

Yesterday, the Centre for Policy Dialogue (CPD) said any reduction of corporate tax is effective in attracting private investment only when the overall investment climate is conducive for businesses. It said a number of studies on the nexus between corporate tax and private investment found that the reduction of corporate tax rate, in general, fosters private investment.

“However, for many developing countries fiscal incentives often don’t effectively counterbalance the unattractive investment climate conditions such as poor infrastructure, macroeconomic instability, weak governance and markets,” it said. The think-tank said the corporate tax rate is an important source of revenue for Bangladesh, contributing about two-thirds of the income tax collection. The CPD said higher tax rates are common for sectors where competition is regulated. In India, the corporate tax for foreign companies is 40 percent, which is 30 percent for domestic companies.

Towfiqul Islam Khan, research fellow of the CPD, said 2018-19 may not be the best year to reduce the rate.

“It will be difficult for the government to compensate the revenue loss from the corporate tax cut. So, there needs to be an in-depth impact study and such decision may be taken as part of broader revenue mobilisation reform package,” he said. Even if the corporate tax rate cut is inevitable for the government, it should be done in small instalments and in a staggered manner in order to give time to the NBR to adjust, Khan said. The corporate tax is declining globally,  said Mamun Rashid, managing partner of PricewaterhouseCoopers Bangladesh.

The US and the UK are reducing tax to attract conglomerates, he said.

He said high tax along with multilayer taxation hinders the growth of large companies and acts as a disincentive for investment. “Entrepreneurs should be given more money in hands so that they can reinvest. Policymakers should encourage conglomerates because they can create jobs, which are an important tool to reduce poverty.”