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Dismantling barriers to investment

Doulot Akter Mala | November 13, 2019 00:00:00

The recent improvement of Bangladesh's doing business ranking in the World Bank (WB) index is, certainly, positive news for the country's investors. Bangladesh has progressed eight notches up. It would give a green signal to the potential investors. The country's investment GDP (Gross Domestic Product) ratio is expected to see its outcome.

Currently, the investment - GDP ratio of the country is above 31 per cent. Of the ratio, private investment is 23.40 per cent and public 8.17 per cent. Last year, the investment-GDP ratio for private investment was 23.26 and public 7.97 per cent, according to data of the Bangladesh Bureau of Statistics (BBS).

Private investment showed a nominal growth of 0.60 per cent while public investment 2.50 per cent in the last fiscal year largely due to implementation of the government's mega projects.

Such nominal growth of private sector investment along with winding - up of investment by some foreign investors require due attention of the policy makers.

It should be addressed seriously that some foreign investors including airline and pharmaceuticals companies have already wound up their business operations in Bangladesh. Also, policy makers should watch how our competitor countries are progressing and attracting investments.

In the ease of doing business index, Bangladesh's rank is 168th while India ranked 63rd, Nepal 94th, Bhutan 89th, Sri Lanka 99th and Pakistan 108th.

A number of investment agencies including Bangladesh Investment Development Authority (BIDA), Bangladesh Economic Zones Authority (BEZA), Bangladesh Export Processing Zones Authority (BEZA) and Hi-tech Park Authority are making their all-out efforts to increase the country's ranking in the ease of doing business index. Those agencies are trying to attract new investments into the country.

With the relentless efforts of those authorities, looking into the experiences of the existing investors should be given the first priority. It is important to give a positive signal to the new investors on the country's investment climate. What they are facing after investment in the country matters for the new investors.

Policy consistencies, favourable environment for businesses, speedy service delivery by the relevant agencies, proper coordination among the government entities, taxpayers' friendly attitude, and hassle-free export-import activities are the major requirements of the investors.

No denying that fiscal policies play an important role to attract investments. In most of the cases, the National Board of Revenue (NBR) frames tax policies focusing on revenue mobilisation. The board prepares a loss and gain estimate on the basis of the fiscal measures with their budget exercise. On the other side, a number of government agencies framed policies to attract investment offering different fiscal benefits. Investors often complain that they are not getting their promised benefits due to lack of coordination between the government entities. Their experiences after investment give a wrong signal to the potential investors.

The leaders of the Metropolitan Chamber of Commerce and Industry (MCCI), in a recent meeting with the Executive Chairman of the BIDA, have raised their concern over lack of proper coordination between the government agencies.

Airing concern over slow pace of decision making, the business leaders also said when one department clears an issue or dispose of a file, another one holds it causing immense sufferings to the investors.

Some government agencies offer fiscal benefits to the investors by framing policies which the revenue board does not welcome for the sake of protecting revenue. However, both foreign and local investors make investment on the basis of benefits offered by the government. In many cases, investors face difficulties in availing those promised benefits. As per country's law, any of the fiscal benefits come into force with the issuance of a regulatory order by the NBR. In several cases, it has been found that issuance of such regulatory orders remained shelved for years putting investors at bay.

Policy consistency is another long-cherished demand of the investors. They demand this to prepare their long-term investment plan. Frequent changes in tax policies and other fiscal measures cause escalation of the projected cost of the existing investors. The government changes a number of fiscal measures in the budget for every year through Finance Bill. Following the changes, investors have to revise their cost of investment on the basis of slapped corporate and other taxes. Investors need to know what will be the rate of taxes for them after five years. A long term projection for at least five to ten years would help them to make a sustainable investment plan.

The neigbouring country India has planned to gradually reduce its corporate tax rate in phases. Such plan would make the investors comfortable as well as help them avoid sudden pressure on loss of internal revenue collection due to cut in taxes.

Interaction between the policy makers and the existing investors, both foreign and local, is important to learn about the bottlenecks of investment before framing policies. Their feedback on fiscal policies should seriously be taken into consideration. Resolving the problems with their investment, delivering speedy services, reducing hassles at customs ports and easing transportation of goods are among the major issues that need to be addressed.

To reduce import and export time, the National Board of Revenue (NBR) has taken up a project at an estimated cost of Tk 6.0 billion titled National Single Window (NSW). Currently, completion of import procedures in the port needs on an average eight days while export procedure five days. The NBR targets to reduce the time for import procedures to two days and export to one day by 2022 under the project. Some 39 agencies, both public and private, will be integrated with the NSW portal. The Bangladesh Investment Climate Fund (BICF), with the support of both International Finance Corporation and DFID, is supporting the NBR to implement the project. Once the project implemented, the import and export process will be expedited. The aim of the project is to facilitate investment by providing an integrated portal.

Such steps of the government may bring significant changes in the country's investment scenario. However, need assessment of the investors and impact analysis before implementing a new law are imperative to make it successful.

We can cite the example of the new VAT law. The government has implemented it from July 1, 2019 although it was passed by the Parliament in 2012. Despite several proposals from the businesses, the government implemented the law without conducting any impact analysis. As after-effects, the NBR had to issue more than a dozen regulatory orders after the law came into effect in July 1, 2019. It has amended a number of provisions of the new VAT law. Also, both the field-level VAT officials and businesses have come up with several complaints on the new provisions of the law. The NBR has been compelled to widen the area of exemption of VAT further.

In a recent press briefing, the finance minister instructed the NBR to implement the current fiscal year's budget without offering further exemptions for the sake of revenue mobilisation. But, within one week of the instruction, the NBR issued five to six SROs with tax exemption. However, all of the summaries of the SROs need approval of the finance minister. Certainly, the NBR gave the tax exemptions following the demand from the industry insiders and investors.

The budget that is approved by the Parliament should not be changed in such a manner in the middle of the year. The NBR conducts an intensive discussion with the stakeholders and existing investors as a part of its budget preparation exercise. Many of the investors alleged that their proposals in the pre-budget meetings are not considered at the time of framing fiscal policies. In many cases, the NBR had to bow down to the demands of the influential quarters following their strong lobby. Also, investors who have access to the policy makers can explain their problems and press for their due demand which is difficult for others. It has been found that some proposals of the investors remained shelved for years due to policy makers' reluctance to address those. For example, all of the exporters have enjoyed 0.25 per cent source tax last year except jute and jute goods exporters who paid source tax at a rate of 0.60 per cent on their export-proceeds. Jute products producers said their proposals were not considered despite submitting written proposals to the NBR.

Priority setting is important at the time of framing fiscal policies. In most of the cases, policies are framed, influenced by an influential lobby who have access to the government high-ups.

For devising fiscal policies, policy makers have to pay attention to the investors' proposals, devise favourable fiscal measures and remove tariff and non-tariff barriers.

A coordinated approach of the government's agencies is needed to make the existing investors happy as well as attract new investment. We have to develop our negotiation skills and sharpen our focus further on ensuring incentives and other benefits for the investors. The country's demographic dividend, favourable weather, political stability, fiscal policies can attract both foreign and local investors. Creating an enabling environment for the existing investors would help bring more new investments into the private sector.

The author is a Special Correspondent at FE.


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