Patronising electrical goods manufacturers

Almost 50 per cent of the population of the erstwhile Bengal used to be artisans and small and mid-level business people. A lot of people in this region were involved in local industries like textiles, metal work, pottery etc. Things began changing after the Industrial Revolution in Britain, as the colonial rulers started to establish their own textile market in this part of the world, thus triggering unfavourable competition with the local small industries. Business-hostile tax policies were also imposed by them afterwards, which not only deteriorated the condition of the region's local manufacturers but also compelled them, subsequently, to quit their businesses. The British policy hampered the economy of this part of the world, eclipsing its indigenous small and medium enterprises (SMEs).
Even after the independence of Bangladesh,   things have not changed much. With the SME entrepreneurs shoved into the corner, the importers of finished goods continued to receive government favour. The simple reason was the financial strength of the importers. Lots of pledges and programmes are found in the government policies to enhance and promote the potentialities of our SMEs, but few of them could translate into reality because of the rigid structure of the tax and VAT regime. The SME sector sometimes has to face the irrational collection of tax and the imposition of VAT (value added tax).  
The SMEs involved in manufacturing electrical goods are directly affected by this tax procedure. A research on the electrical and electronic sectors was undertaken by PKF Accountants and Business Advisers in January 2013. The whole project was financed by the European Union. It has identified the impediments to the growth of our indigenous electrical product manufacturing units. The project has also dealt with the harassment of our electrical product manufacturers at the hands of the authorities ranging from customs officials to law enforcement personnel. All this has led to an adverse situation for the country's electrical product manufacturers at SME level.
Since Bangladesh is a resource-starved country, its electrical goods manufacturers have to import various raw materials. The entire process is lengthy and arduous for them from preparations for import to the point when they bring the products to the showroom. Even the traffic policemen are sometimes found to be harassing the people involved in the business, as they transport the manufactured products from factories to showrooms. These scenes can be found in the Nawabpur area in the capital where the large electrical goods market exists.
In the late eighties, this sector witnessed a rapid rise, but could not develop to the extent at which it should have been after all these years of independence. One would like to mention that a main factor behind the development of the countries like Japan, China or India is their focus on small industries at the initial stage.
There are currently a good number of electrical manufacturers in Bangladesh. They have long been producing electrical appliances of reasonable quality. There are about 1000 electrical manufacturers registered with the Bangladesh Electrical Merchandise Manufacturers' Association (BEMMA). Although there are many other such SMEs which are not registered with BEMMA, they are active in the local market. This is another problem since the quality of the products made by these SMEs is not as per standard.
There are many manufacturers who do not have any showroom and, therefore, are not acquainted with the needs of the consumers. They sell their products through retailers. The reason they do not come out is the 'fear' of being harassed by the government officials concerned. Under Section 14 of the VAT Act, 1991, the government may exempt the import or supply of any goods or classes of goods, or, any services supplied, from the value added tax, or, as the case may be, additional duties of customs chargeable under this Act, by notification in the official gazette, subject to limits and conditions mentioned therein. The research undertaken by PKF Accountants and Business Advisers found that although small cottage industries are sometimes exempted from taxes on the basis of their yearly net income, and the value of the machinery they use in the factory, the government officials allegedly harass them to derive personal benefits.   
The adverse situation prevailing in this sector is actually helping the importers of the finished electrical goods. The importers cannot be blamed since we are now living in the age of globalisation and collaborative business practice. Like in the other sectors, competition is stiff in the retail market of electrical products. It is undeniable that in improving the quality of our local products, the imported items play a vital role at times. Quality imported products always inspire local manufacturers to improve the quality of their own items.
However, the problem lies with the government's tax and VAT policies. Tax and VAT are comparatively less on the finished goods than the tax and VAT levied on the raw materials of local electrical products. This situation has already adversely affected the domestic market. Many local factories are facing closure. Some have already closed. As a result, a lot of people are losing their jobs.
The National Board of Revenue (NBR) drafts tax policy. The policy involves income, VAT and others (others meaning import duties, taxes on finished goods, raw materials and components of manufacturers). In the process of making such policy formulations NBR sits for talks with various stakeholders including organisations like BEMMA which represents indigenous electrical SMEs and the similar others. The NBR collects recommendations from these organisations. But it is a matter of regret that these recommendations are hardly reflected in the measures relating to tax or VAT.
The entrepreneurs have long been urging the government to take necessary steps to lower duties levied on the raw materials used in the electrical goods sector. For example, Phenolic Moulding Powder (PMP), which is basically used in making different electrical products (i.e. switch, socket, ceiling rose etc), is imported. Other sectors also use PMP and that could be one of the reasons why tax and VAT imposed on PMP are too high.  As a result, the local electrical product manufacturers have to fix the price of their products high, which is, in certain cases, higher than that of the imported products.

The writer is lecturer and coordinator at the Department of Law, World University of Bangladesh.
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