NBR to narrow scope of tax evasion

Star Business Report

Tax authorities plan to audit foreign companies’ transactions with their associated entities abroad from next year in order to reduce the scope for illicit fund transfer and tax evasion, said an official yesterday.

“We will start auditing cases that will be deemed high risk in terms of revenue losses,” said the official of the National Board of Revenue.

The NBR has reconstituted its Transfer Pricing Cell to bolster its operations to monitor international transactions by foreign companies in line with a law framed in 2012.

The tax authorities formed an eight-member cell, headed by Md Shabbir Ahmed, first secretary for tax policy, to examine any international transaction valued more than Tk 3 crore in a fiscal year by a multinational or its associated entities from Bangladesh to enforce the law, which has not been implemented fully yet.

Transfer pricing is an accounting method that allows multinational companies to shift net profits or losses to offshore or low-tax countries to maximize earnings.

For instance, two subsidiaries of a company, one based in a high-tax country and another in a low-tax haven, can engage in trade with one another.

The low-tax subsidiary can quote abnormally high prices for goods or services from the high-tax subsidiary to ensure maximum net profits for the parent company, an unethical practice many multinational firms may resort to.

The NBR has included the transfer pricing provision in the income tax law in the face of growing concerns of illegal outflow of funds from Bangladesh.

According to Washington-based research organisation Global Financial Integrity, $61.6 billion were siphoned out of Bangladesh between 2005 and 2014, equivalent to 25 percent of the country’s gross domestic product in 2016-17.

An NBR survey has found that 921 foreign companies, including multinationals, carry out transactions with their associated entities overseas to buy goods and services, said the official. Of them, 100-120 companies have been reporting international transactions for the last several years.

“We are examining the documents and we hope to complete the risk assessment by December to select cases for auditing,” he said.

The Netherlands is providing technical support to the revenue board to develop the capacity of tax officials on transfer pricing.

Ease trade rules to attract more US investment

Outgoing envoy suggests

Star Business Report

Bangladesh needs to reform its trade regulations for ease of doing business to attract more US investment, outgoing US ambassador Marcia Bernicat said yesterday.

“American businessmen and women have a lot of different choices. You want to bring them here. Once they get here they would be impressed, but once they are here the ease of doing business is the way to get them to stay here,” she said.

“Bangladesh’s ease of doing business is way too low. There is good money to be made here, there are a lot of great partners but 42 steps to open a business,” said Bernicat.

Addressing a farewell luncheon meeting of the American Chamber of Commerce in Bangladesh (AmCham) at The Westin Dhaka, she said reforms were needed to encourage businesses to flock here.

It is easy to do good business here and Bangladesh needs to do a better job at selling its story, she said, adding that Bangladesh is different now from what its story was in 1971. Bangladesh is not devastated by storms now.

“Too few people know about your consistent 6 percent or more growth rate over the years and vibrant sectors…Who has to tell the story? The government has to tell it, the industries have to sell it and the civil society has to sell it,” she said.

Regarding the safety progress in the garment sector, Bernicat said, “I would say the progress that has been made is enormous. But the safety has to be a part of the culture so that people know about it all the time. The Remediation Coordination Cell needs to be strengthened further to make it ready for operation.”

The ambassador—who completed a three-year tenure here—also said the US was by far the biggest investor for Bangladesh.

The US is also Bangladesh’s single largest export destination. In 2017, the bilateral trade between Bangladesh and the US stood at over $7 billion. US exports to Bangladesh grew 61 percent last year.

Clearly, the US firms are strongly interested to invest in this promising market, she said.

Bangladesh offered one of the world’s fastest growing economies, sustained impressive economic performance over the decades and the opportunity to enhance infrastructures and the burgeoning middle class, all key elements, said Bernicat.

She said both countries did a number of regional trade activities together and have highlighted the growing opportunities available for South Asia to trade with itself.

A lot more will be done under an Indo Pacific strategy, as US Foreign Secretary Michael R Pompeo stated recently. “Good part of the strategy is about keeping markets open, keeping sea lines open, keeping opportunities available for countries to attract investment to grow their business sectors. In Indo Pacific strategy, Bangladesh is considered as one of the strongest partners in South Asia,” she said.

“It is my expectation that Bangladesh will continue to grow. The next level of Trade and Investment Cooperation Forum Agreement (TICFA) talks will be held between September 13 and 14 in Washington where the bilateral trade issues would be discussed widely by both partners.”

Bernicat suggested strong corporate value that not only involves good products and a good price that was reliable but also improving the environmental value with corporate social responsibility and conducting business in a fair and transparent manner. Those practices and values about doing business are the right ways, she added.

Govt yet to decide on joining Belt and Road

Tofail says

Star Business Report

Bangladesh has no plan to join the much-talked about Chinese flagship Belt and Road Initiative, which has been taken to rediscover the ancient Silk Road for trade across Asia and the Europe, Commerce Minister Tofail Ahmed said on Sunday.

The minister made the comments at a press meet at his secretariat office in Dhaka after a meeting with Zhang Zuo, the newly appointed Chinese ambassador to Bangladesh.

Ahmed said till now they did not think about joining the belt and road initiative of China.

The minister also talked on Bangladesh’s duty-free market access to China. Bangladesh as a least developed country (LDC) has been enjoying zero-duty benefit on export to China on 5,074 products, a majority of which are garment items.

But as per rules of the World Trade Organisation, LDCs are supposed to get duty-free market access on their 97 percent products.

The minister also hoped that China will continue to give duty benefit to Bangladesh even after the latter’s graduation to a developing nation in 2024. “We have already sent a letter to China to continue to getting the duty benefit on exports,” Ahmed told reporters.

Bangladesh has started taking efforts to enjoy the duty facility as the Chinese government said that it would cancel the benefits it gives under the existing Asia Pacific Trade Agreement (APTA), Ahmed said.

Bangladesh has also been trying to sign a free trade agreement (FTA) with the Asian economic giant to continue to get the duty benefit, the minister said. But the signing of an FTA generally takes a long time, he said. Bangladesh has been enjoying duty benefit on export of 83 products under the APTA to China.

China is the largest import destination for Bangladesh.

Written-off loans reach Tk 48,053cr

AKM Zamir Uddin

The amount of loans written off by banks increased six times year-on-year to Tk 141 crore in the first quarter of 2018 as the lenders used a central bank policy to clean up their books.

This took the total written-off loans figure to Tk 48,053 crore since January 2003 when the policy was introduced.

Tk 24.76 crore was written off in the January-March quarter last year, according to Bangladesh Bank data.

Of the six banks that used the facility to clean up their balance sheets, Premier Bank topped the chart as it removed bad debts worth Tk 64 crore from its book. Eastern Bank wrote off Tk 55.42 crore.

State-owned banks wrote off Tk 22,618 crore and private banks Tk 23,825 crore in the quarter.

Two state-run specialised banks—Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank—wrote off Tk 555 crore and foreign commercial banks Tk 1,055 crore.

Between January 2003 and March 2018, Tk 48,053 crore were written off. Of the amount, 78 percent remained outstanding, meaning banks’ efforts to recover the bad loans haven’t paid off.

Banks prefer to avoid writing off bad loans as it is their primary assets and source of future revenue.

However, toxic loans that cannot be collected or are difficult to recover reflect very poorly on a bank’s balance sheets and can divert resources from more productive activity. This leads banks to remove bad loans from their balance sheets and thus reduce tax liability.

A central banker, however, said banks usually do not write off bad loans in the first quarter as there is no rush to clean the balance sheets at the beginning of a year.

The banking sector wrote off Tk 1,875 crore in the October-December quarter last year.

As per BB rules, loans are written off after making adequate provisions to take advantage of tax benefits. But banks are obligated to continue their recovery efforts.

In order to write off, banks have to file lawsuits with the money loan court against defaulters and keep 100 percent provisioning.

The process to write off was not transparent as it was an attempt to prevent people from knowing the actual figure of default loans, Khondkar Ibrahim Khaled, a former deputy governor of the central bank, told The Daily Star yesterday. Banks write off loans to conceal corruption, he said.

“The central bank introduced the policy to show a decreased amount of default loans on banks’ balance sheets with a view to presenting a positive picture of the country’s financial sector to the international community,” he said.

Khaled said write-off loans are like uncollectible loans and the recovery process is highly difficult.

“So, banks should prevent corruption so that the vested quarter can’t take loans through unethical process.”

Default loans rose by Tk 14,286 crore to Tk 88,589 crore in March this year compared to a quarter ago, showed BB data.

Default and write-off loans together totalled more than Tk 1.26 lakh crore at the end of March.