The cost of doing business increasing

The cost of doing business index of 2016 put Bangladesh in the lowest rung of ranking. In 2015, the country's position was 172, which slipped to 174 in 2016 out of 189 economies.  The ranking of Bangladesh in starting a business was downgraded from 111 of 2015 to 117 in 2016. Overall Distance to Frontiers (DTF) was 42.71 in 2015 and it  increased to 42.95 in 2016. In case of starting a business, the DTF was 81.36 in 2015 and it increased to 81.72 in 2016 (World Bank). 
While we tried to identify the reasons behind this decline, it was seen that frontier countries went for extensive reforms and improved their situation. In South Asia, entrepreneurs in Bangladesh need nine procedures to complete before starting a business, while in Nepal, requirements are seven, Sri Lanka eight, the Maldives five. Pakistan and India require more documents than Bangladesh and the number is 10 and 12.9 respectively. In some East Asian, Pacific and South Asian countries, starting a business requires fewer procedures,   In Hong Kong, the number of procedures is only two. Among 39 countries, the requirement in Bangladesh is the highest. For starting a business in Singapore, required procedures are only three; similar is the case for Malaysia and Taiwan. With respect to cost of starting a business also, Bangladesh is in the upper stream with the amount being US$ 156.37; in Bhutan it is US$ 95.44, in Thailand US$ 11.54, while in Nepal, the amount is only US$ 3.72 . Policymakers should pay serious attention to this so that start-up procedures can be reduced and thus the cost of starting a business and time can be reduced further. 
Bangladesh is one of manufacturing-led economies; inequality is manageable, gini-coefficient lower than the start (1973) and it is lower than the comparative countries (Bangladesh Bank) like India, Sri Lanka, Indonesia, Tanzania, Mexico, Kenya etc. Poverty rate has been reduced from 73 per cent of 1985 to about 24 per cent in 2015. Along with all these attributes, a significant proportion of population of the country is below the poverty line and still vulnerable to climate change, disaster shocks and social insecurity and environment challenges.  Keeping all these issues in mind, the 7th FYP targeted an increased growth rate of 8,0 per cent in alignment with Sustainable Development Goals (SDGs).
Under the 7th Five-year Plan (FYP), growth of industries has been targeted to reach about 12 per cent from the present level of 9.60 per cent. Private sector investment has been given emphasis while foreign direct investment  (FDI) target is about six fold. Out of its Tk 31-trillion Plan outlay, private sector share is expected to reach 77.3 per cent or Tk 24.64 trillion, while the share of public sector would be Tk 7.25 trillion (22.7 per cent). The government is willing to facilitate through policy support while  private sector is in the driving seat. The SME  (small and medium-sized enterprise) people in the private sector mostly contribute to employment creation and about 20 million job creation is the target of the 7 FYP. So there is an urgent need to extend practical policy support to SME development.
SMEs have been identified as one of the growth vehicles and sustainable development. Public- private participation  (PPP) in a structured mode is a vehicle to know about the needs of the private sector and thus help the government develop an integrated policy framework involving all related players. Industries are one of the sources of economic growth, as industry-based economies can be less fragile and can contribute for sustainable growth. Structured and effective dialogue with government and all other sectors are the pillars of targeted success and identification of 'choke points'.
Resolution adopted by the UN General Assembly on September 25, 2015, namely 'Transforming our World: the 2030 Agenda for Sustainable Development,' in its Goal 12 explains ensuring sustainable consumption and production patterns. Especially Clause 12.4-12.8 (SDG Goal, page 
22/35 ) clearly mentions about sustainable production process. Achievements of Bangladesh in meeting targets of Millennium Development Goals (MDGs) have increased expectations that the country will similarly perform in achieving SDG targets. The private sector needs all-out supportsin this direction for building capacities.

MANUFACTURING-BASED GROWTH: Bangladesh has opted for a manufacturing-based growth. The 7th FYP announced its industrial targets aligning itself with the Industrial Policy 2016. As SMEs are the vital tools of overall industrial undertaking of the country, there is no alternative but to support SMEs through different policy supports.
In this aspect, this scribe has made an effort to delineate  the present (i) picture of the regulatory barriers SMEs are facing; (ii.) process mapping some essential entry requirements to get transparent business start-up services; (iii) examples of some similarly placed countries and (iv) how best solution can be suggested for SMEs, which are vital for the economy. 
REGULATORY BARRIERS OF SMES: The private sector is united in removing challenges that SMEs face in business start-up process which include getting funding, marketing, quality certification, procuring raw materials etc. Banks do not like to give access to the SMEs which require a number of documents and in that context, small, micro- and women entrepreneurs are the worst sufferers. Banks require for, besides their husbands, other guarantors in case of women entrepreneurs. Widows face serious problems. Collateral-free loan of about Tk 2.5 million is on paper; in practice it is different. It is difficult to explain all start-up processes in an article. So here is an attempt to give an idea of stringent procedures.
TIME-CONSUMING PROCESS: Except the companies registered with the RJSC (Registrar of Joint Stock Companies and Firms) , most of the SMEs are dependent on trade licence before starting a business. Around 234 municipalities and 11 offices of seven divisions issue trade licences for any type of businesses as per a revised circular issued on February 23, 2015 ( S R O no 44 law/2015) and then again revised on January 31, 2016 replacing the earlier gazette published in November 4, 2002.

Documents required for trade licence are not many but the entrepreneurs face some regulatory barriers to start business like delay in getting licence and complex procedures. There is no single window for providing all related information. Trade licence is of two types for commercial and manufacturing firms.  For manufacturing, trade licences (Business Start-up Licences-A Regulatory Guide) the official time (10-15 days) requirement is much longer than commercial (3-4 days) firms. The number of documents required for manufacturing firms is 17 while commercial firms have to produce 12 documents. For manufacturing firms, the additional requirements are no-objection certificate (NOC) declaration from local authority, location map, sketch along with details of the proposed organisation or factories or surrounding of the factories, fire licences and environment clearance certificate.  All these licences require time and involve costs. While fees for these two types of trade licences are the same, the renewal process for manufacturing firms is difficult as it needs renewal of fire licence and environment clearance licence.

Besides, getting trade licence requires ownership proof and rent receipt while women have to show their signboards which are sometimes impossible for those starting entrepreneurship on a hired premise. Recently, trade licence fees have been increased a lot while VAT at the rate of 15 per cent has been imposed and is collected retrospectively enhancing cost of doing business.
IMPORT AND EXPORT LICENCE FROM CCI & E: Like trade licence, Import Registration Certificates (IRC) are of three different types--IRC Commercial, Ad-Hoc IRC and IRC for indenting business. For commercial IRC, document requirements are nine and the official time is two hours and processing time is one working day. In case of renewal, only two documents are required. While for Ad-Hoc IRC the required documents are 10 and time requirement is 10 days from the day when the inspector gets the office order for inspecting the applicant's infrastructure. Processing time depends on both the parties.  Fees for commercial IRC are much higher than indenting IRC.
In case of indenting, documents required are nine, official time limit is two hours, processing time is one working day but time may vary. In case of export registration certificate, process is a bit simples with documents required nine, time requirement almost the same as IRC. Renewal can be accomplished by the nominated banks (NBs) but a lot of problems arise out of this policy
TURNOVER TAX PAYMENT REGISTRATION: For registration of SMEs as a turnover taxpayer matters most as s/he is capable of paying at a reduced rate of VAT at 3.0 pr cent instead of 15 per cent. Investment up to Tk  4.0 million is allowed  machinery import without tax while SMEs with investment of up to Tk 3.6 million do not need to pay tax, which was in the past Tk 3.0 million only. In India, the amount is much higher at about Rs 10 million. Interestingly, the amount of revenue from the turnover taxpayer is very insignificant at only Tk 49.8 million which is 0.00332 per cent. It means much less than even one per cent of the total revenue generated by the National Board of Revenue. One of the reasons could be stringent procedures of registration under turnover taxpayers.  
COMPULSORY TIN CERTIFICATE: From the financial year 2016-17, the government has made Tax Identification Number (TIN) compulsory for all employees of companies. Employees in the SMEs would also require TIN. This licence does not require any money but bureaucratic hassles always stop SMEs getting TIN and thus cannot apply or qualify for bank loans. Similar is the case for environmental certificate, fire licence, licence from the department of factories and establishments, utility permissions like gas, electricity water connections etc. A one-stop solution for SMEs is one of the requirements.
CERTIFICATION LICENCE FROM BSTI: In all the above licences, it is seen that there are regulatory barriers. Automation is attempted in all respects but could not be successful because of many reasons. In case of BSTI (Bangladesh Standards And Testing Institution), there was a serious effort to reduce the number of days to provide the Certification Licence which is one of the requirements to maintain quality. Things have changed a lot but full automation has not been possible even though there were projects after projects to meet these objectives.
SMEs and business entrepreneurs are always of the opinion that they do not need incentives. Rather they want process simplification to reduce cost of doing business and time so that they can be competent enough and can have a level playing field.
The Alternative Investment Rules for venture capital funding announced in 2015 have given access for the SMEs to venture capital funding. A number of developing countries have encouraged innovative SMEs to initiate their ventures by having venture capital fund. In Bangladesh, required policies on venture capital were absent; now there is a policy for fund manager to manage funds but still there are some policy loopholes in respect of tax structure, permission and licencing procedures. Until and unless these are properly addressed, new firms will not feel encouraged to come up with their ventures.
The writer is CEO, Business Initiative Leading Development (BUILD).
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