2 years ago

Cash incentives for export diversification

Exporters milking 'new market' cash cow

Govt pays over Tk 27.0b in incentives during the bounty period

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A perceived ambiguity in government order on incentives for export diversification leaves a large scope for exporters to make some extra bucks by showing shipments to 'new market', sources say.

The United Kingdom was never a new market for Bangladesh. But the order issued by the Monitoring Cell of the Ministry of Finance paved the way for local exporters to be eligible to get cash benefits through export to the UK as a 'new market', according to latest findings.

The bounty period is of 29 months beginning February 2020-the time when trade promotion was a high priority for the event of a global pandemic beginning to upend normal course of things.

Meanwhile, the UK had quit the EU in January 2020 under the Brexit formula. But the UK is not a new market for Bangladesh. The government did define the provision in September last or after 32 months of Brexit execution.

The Financial Express (FE) has obtained a copy of the order. It reads from July 2022, the UK will be recognised as an old market.

Old or traditional markets for Bangladesh are usually the USA, Canada, and the European Union (EU) where Bangladesh mostly makes nearly US$40 billion worth of shipments annually. And outside are all its new markets.

The government provides 4.0-percent cash incentives to the exporters as financial perks for exploring new market or diversified products. So, exporters get cash incentives both for new markets and new products.

However, in the meantime, a section of exporters, especially clothing-related manufacturers, cashed in on the absence of definition through claiming the cash. Some have succeeded, some are in the queue. But the order is inviting all legally.

It is estimated that the government could have lost out over Tk 15.47 billion in 2020-21 for meeting the liabilities related to the cash incentives for the shipments to the UK in the particular year.

And the amount may come to a total of over Tk 27.0 billion for footing the incentives bill for the whole period of 29 months.

This is happening at a time when the government is pursuing austerity to combat a financial crisis stemming especially from weak revenue mobilization and forex-reserve volatility-cutting back on development-project funding and power outages for fuel-supply shortages.

Ms Arfin Ara Begum, Director-General (Additional Secretary) at the Monitoring Cell of the Ministry of Finance (MoF), could not be contacted for her view. Md Sohrab Hossain who signed the letter also could not be contacted over the phone Tuesday.

Md. Firoz Ahmed, Additional Director-General at the Monitoring Cell, told the FE: "The UK is not a new market--we have been doing business with it since our inception as an independent country."

He said the exporters who shipped their goods to the UK would not get the benefit.

"I'm communicating with the relevant officers on the matter," Mr Ahmed said.

However, the lacuna came to light nearly two years later when an audit team of the Office of Comptroller and Auditor General identified it in investigations.

The audit team wrote: the central bank of Bangladesh is seeking a directive for the commercial banks to halt the transactions with the exporters over the issue. But the central bank, instead of taking any initiative, sought directives from the Finance Division in July last.

The central bank in principle agreed with the opinion of the audit team, saying that the UK is no more a new market for Bangladeshi exporters.

The Bangladesh Bank brought the issue into foreground of the Ministry of Finance (MoF) in July 2022. The Monitoring Cell wrote to the Governor of Bangladesh Bank on September 22.

It says, as regards new markets and new product exports, that the United States or Canada, the European Union or the United Kingdom is designated in the new definition as old markets and the exporters will not get any cash incentives.

And the order "will be effective from July 01, 2022", the letter reads.

The relevant guidelines pertaining to providing cash incentives have some conditions that allow taking back the amount paid as cash incentives.

Under the circular issued by the central bank in 2010 the exporters can apply even for past dues.

And the central bank can deduct the amount given as cash incentives if any forgery or such corruption surfaces. The exporters give an undertaking before receiving the cash incentives

Cash incentive is given on the net fob (free on board) prices.

Bangladesh's exports to the UK fetched US$4.17 billion in 2018-19, $3.45 billion in 2019-2020, and $3.75 billion in 2020-21, according to the country's apex export-promotion agency -- EPB.

The government in the meantime provided Tk 63.9 billion as cash incentives for all new markets in 2019-20, Tk 66.45 billion in 2020-21 and Tk 87.84 billion in 2021-22, according to Bangladesh Bank reckonings.

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