The decision to slash incentives to exporters has kicked up a hornet's nest. The various chambers of commerce and the different associations of readymade apparel companies (RMG) have joined together to raise the issue with the finance minister. Their principal argument against withdrawal of the facility is that Bangladesh still has two years to go before LDC (least developed country) graduation, i.e., when such incentives will have to go anyway. So, why reduce it drastically? Why not withdraw it in several phases at nominal rates to cushion industries at a critical time?
There is some merit in such line of thinking. One example of how a sudden decision taken by the ministry of finance during the last fiscal year (and how that seriously slashed government earning) was the disastrous decision to double the land registration rate. No one could figure out why the ministry had taken such a decision in the first place. Instead of magically boosting revenue it dipped to ridiculously low levels. Today, people simply do not register land or fixed assets when there is a change of ownership. Revenues are down manifold. People and business entities have found loopholes in the system and it is business as usual.
Getting back to the issue at hand, the government has taken a broad sword and cut incentives for almost all export items. According to a report published in this newspaper, the decision is due to be effective as of January 1, 2024 to June 30, 2024. There is no denying the fact that the largest contributor to exports is dominated by a single sector, i.e., RMG which also happens to be the largest employer. With millions of workers, the vast majority of whom are women have been a game changer when it comes to women empowerment in this country and despite all the flak the industry receives on the issue of low wages it pays its workers, it remains a major employer in the country.
The government has its own set of arguments not without merit. However, the fact is that the industry has been battling a slew of issues together and is increasingly becoming unprofitable. Those issues need to be taken into cognizance by the government. As pointed out by a certain chamber president, business houses have to deal with an upward adjustment of interest rates on loans, slashing of exporters' retention quota by 50 per cent, customs difficulties, etc.
Could the decision by the government to go hard line on the issue be based on something else entirely? One simply cannot wish away certain uncomfortable truths. For instance, the one revolving around trade-based mis-invoicing - a rampant malpractice that is costing the national exchequer billions in uncollected taxes and precious foreign exchange because a significant portion of foreign currency earned by exporters simply do not come back to the country. This is a widely prevalent malpractice that has been going on for decades and one that has paid for entire posh neighbourhoods in foreign countries (2nd and 3rd homes), lavish lifestyles in-country, fancy cars, fancy trips to the French Riviera, the Bahamas and what not.
A recent report in media has been making the rounds. Apparently, an investigation by customs intelligence has found an exporter mis-labelling containers of apparels being exported in connivance with some unscrupulous officials. The incident came to light during an investigation and the two containers' shipment was halted. The misdeclaration, had it gone through would have allowed for the exporter to launder a few hundred thousand dollars. If that is the case, imagine what has been happening on the export side where tens of thousands of such containers are being shipped to overseas markets every year.
There is no exact figure on how many billions of dollars have been siphoned off by exporters in this country. The Global Financial Integrity (GFI) report that comes out every year only records and reports a fraction of the illicit trade practices around the globe. As pointed out by GFI's 'Illicit Financial Flows to and from 148 Developing Countries: 2006-2015', "trade misinvoicing is a method of moving IFFs, and includes the deliberate misrepresentation of the value of imports or exports in order to evade customs duties and VAT taxes, launder the proceeds of criminal activity or to hide offshore the proceeds of legitimate trade transactions, among other motivations." The illicit outflow through trade mis-invoicing stood at around $6.0 billion during the stated period and economists put this estimate to be a fraction of the real figure. Hence when one looks at the bigger picture from policy level, the decision to take corrective action makes sense. However, given that businesses and industry are facing multiple issues on various fronts that have raised cost of production, a phase-by-phase reduction in incentive should be considered.
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