TO: Cameron A. McCaw
FROM: Dhaval D Majithia
DATE: December 21, 2017
SUBJECT: Corruption in Bangladesh
1. Impact on economy
2. Impact on business
Recent cases of corruption in Bangladesh
Corruption is one of the main concerns in the present day global political economy. Increasing number of studies on corruption during the last decades combined with efforts to measure, to monitor, and to control corruption corroborates that there is unprecedented rise of corruption. If anybody asks a citizen of Bangladesh to identify the prime problem in the state of Bangladesh, the answer is most likely to be the corruption. Transparency International also identifies Bangladesh in the lower end of its Corruption Perceptions Index ranking. Bangladesh is a developing country with numerous social and economic problems. To achieve higher growth, it is expected that the country would strive to improve its condition through augmented economic, social and political activities. When it is observed that these activities are associated with the abuse or misuse of public institutions and the outcome is disappointing, then it may legitimately be hypothesized that corruption is affecting the development process of this country.
Two parts of defilement rise up out of the above clarifications: debasement is identified with the monetary conditions, political exercises and social recognitions; power and manhandle of energy is fundamental piece of the general public. Debasement may increment when monetary conditions are not controlled by suitable vote based esteems, and the manhandle of energy isn’t rebuffed legitimately. In this paper, defilement in Bangladesh is inspected where debasement is charged to be wild at late days. Bangladesh seems to have built up vote based framework in its administration as it has established a valid race process in the most recent decade through which it chooses its legislature. In a cutting edge popular government, people pick their qualities and their rulers in congruity with those qualities.
Nature and Extent of Corruption in Bangladesh
The following types of corruption in Bangladesh incorporates commission installment for granting contracts; kickbacks out of the arrangements and stores in remote monetary standards abroad; broadening undue benefits, offering extremely costly endowments and accommodation; abuse of the state assets; misappropriation of open assets, stifling the proof of wrongdoing and non-indictment of culprits on installment of rewards, coercion and remuneration, preference in arrangements, exchanges, postings and advancements of open workers on receipt of a few delights, anomalies in obtainment or development contracts or diverse open arrangements to encourage individual interests of people and so forth. These types of corruption point out the negative nature of corruption in the public offices.
There are many politicians who are actively involved in corruption; they play the role of mediator in the process. It is, however, difficult to identify the involvement of the politicians in corruption except those who are in power and hold positions in public offices. The politicians, if they are in power, can now pressurize the bureaucracy to get the decision in their favor affecting the public interest.
The economic effects of corruption are generally very difficult to quantify due to the nature of corruption and its measurement but not impossible. Corruption has a negative influence on investment and economic growth. The economic effects of corruption can have minor and major but they both have serious impact on the individual community or country. Corruption leads to the extinction of national wealth. Large scale corruption hurts the economy and population.
Corruption can also influence the willingness of the donor community to provide aid and development assistance. High levels of corruption can cause donors to reduce or withdraw assistance from the world partners. For example, World Bank withdraw their promised $1.2 billion credit by claiming that a high-level corruption conspiracy going against the Bangladeshi government.
Corruption creates income inequality in Bangladesh corrupted politicians and government officers earned illegally more than legally so they spent money without any calculation but an honest government official, privet sector worker or lower government employs have to calculate twice before spending money, this could be easily verified by cheek out the salary and standard of living variations. Corruption may behind to creation inflation and often responsible for increased costs of goods and services.
Due to corruption in tax administration and customs Bangladesh every year lost huge amount of tax revenue. If the tax is collected through legal way the tax revenue may become a huge contributor to national budget.
Things to consider while setting up business in Bangladesh
Judicial System –
Many companies in Bangladesh face a high risk of corruption in their system. Businesses report that irregular payments and bribes are frequently exchanged in order to obtain favourable court decisions. Besides corruption, there are many backlog cases, political interference and weak institutional capacities in their system. Enforcing a contract is a big challenge for businesses as it is uncertain. For companies seeking to settle disputes for export-related transactions, the Bangladesh Export Promotion Bureau may offer facilitation.
Police System –
There is a high risk of encountering corruption in the police due to low salaries, lack of training and expertise. The police force benefit from political patronage and a culture of impunity. The police is not reliable in Bangladesh as they are least reliable in the world and noted it increases the business costs due to crime and violence.
Tax rates in Bangladesh –
The tax liability of a company in Bangladesh depends on the activity and legal status of particular company. Company must pay minimum tax @0.3% tax on their gross receipt, if their normal tax (that specified in above table) liability fall less than minimum tax. There are many irregular payments in taxes in Bangladesh. Over forty percent of firms expect to give gifts in meetings with tax officials. So, we need to take care of this as it is very important to look at it.
Land Administration –
As there is lot of corruption in Bangladesh, people over their demand cash or informal payments when acquiring a construction permit. So, it is necessary to get the titles clear as there are lot of disputes in land and getting titles. While the right to own property is safeguarded by law, it is insufficiently enforced in practice.
Impact on business
The fragile rule of law continues to undermine economic development in Bangladesh. Corruption and marginal enforcement of property rights drive people and enterprises into the informal economy, and poor economic management, worsened by repeated political crises, severely constrains economic dynamism.
Despite some streamlining of business regulations, entrepreneurial activity is hampered by an uncertain regulatory environment and the absence of effective institutional support for private-sector development. The government’s inability to provide even minimal public goods further limits opportunities for business development and job growth.
Mitigating fraud, bribery and corruption risks in Bangladesh
Among developing countries, Bangladesh’s economy has shown significant growth. The current growth in gross domestic product (GDP) of the country stands at 6.9% and has been consistently above 6% over the last three years. Strong private investment, substantial exports figures and large investments in infrastructure and the services sector have helped boost the country’s growth numbers. According to the International Monetary Fund (IMF), Bangladesh is expected to rank second in the top 10 countries, with a growth rate of 7% GDP in 2019.
With companies increasingly seeking growth opportunities in developing countries such as Bangladesh, dealing with fraud, bribery and corruption risks is a challenge. Some of these issues include bribing public officials, low integrity, issues related to third-party relationships (middlemen) and a dearth of good governance. Recently, the UK Government guidelines, doing business in Bangladesh: Bangladesh trade and export guide states, “corruption affects many aspects of daily life in Bangladesh and is often cited as a barrier to private sector development.” The guideline also mentions that one of the biggest challenges facing UK companies in Bangladesh is how to avoid paying “speed money.”
However, due to the growing presence of multinational companies (MNC) setting up operations in the country, these issues have seen a shift. Companies are now more aware — looking at enhancing their anti-bribery and anti- corruption efforts, as well as driving increased compliance and building ethical businesses.
In 2004, the Bangladesh Government took its first step to address several fraudulent activities that were disrupting growth in the country. The 2004 Anti -Corruption Commission (ACC) Act provides for the creation of a commission solely for the purpose of investigating matters such as acquiring wealth disproportionate to the known source of income, embezzlement of government resources and breach of trust.
The ACC has seen two amendments since then. In 2009, the act’s scope was widened to include money laundering as part of it. In 2013, offenses under five sections, including fraud and forgery of the Code of Criminal Procedure, were incorporated. It also included amendments such as mandatory disclosure of corruption- related information by the National Board of Revenue (NBR), law enforcement agencies, Comptroller and Auditor General (CAG) and Bangladesh Bank upon ACC’s request. It retained the appointment of the secretary in ACC’s jurisdiction and confidentiality of the information provider.
In addition to the ACC, the National Coordination Committee (NCC), Anti-Money Laundering Department (AMLD) and the Office of Ombudsman also deal with issues of corruption.
Corruption is a complex multi-faceted social phenomenon with innumerable manifestations. It takes place as an outcome of deficiencies in the existing public administration apparatuses and systems as well as cultural, economic, political and social factors. Differences of opinion still exist as to the meaning of the term corruption. This is primarily because individuals look at corruption from their own vantage points influenced by surrounding environment. But what is heartening is that in recent years corruption is viewed from a much broader perspective rather than looking at it from moral and functional angles only. The causes of corruption are as varied as the 29 phenomenon itself. Corruption results from the presence of a number of factors. There are many forms of corruption. To understand the dynamics of so many types of corruption attempts have been made to classify different forms of corruption into broad categories. What transpires from such a categorization is that outsiders can sponsor corruption resultant of political scandal, institutionalized and administrative malfeasance.
The government needs a well-coordinated, well-understood overall strategy that limits opportunities for abuse of public office, increases the likelihood that individuals will be able to profit from corrupt acts, whether they are giving and receiving bribes. Moreover, the civil societies of the country should come forward to establish the right of the people and to ensure the rule of law in Bangladesh. The professionals, the intellectuals through meetings and sittings, attending and participating the seminars and symposium and writing and contributing to the media can raise a general awareness to build up a corruption-free prosperous Bangladesh in future.
Economic freedoms of Bangladesh
Prime Minister Sheikh Hasina was reelected in January 2014 in an election marred by an opposition boycott. A year later, when antigovernment demonstrations and a transport blockade fueled violence that killed over 120 people, the government jailed over 7,000 opposition members. Extremist attacks against liberal bloggers, religious minorities, and foreigners have risen alarmingly since 2013. A major terrorist attack on a café in Dhaka in July 2016 that killed 22 people has led to concern that international terrorist groups like the Islamic State and al-Qaeda are linking up with local militant groups. Despite the political turmoil, a decade of fairly rapid economic growth has contributed to progress against persistent poverty
Property laws are antiquated, and property rights are enforced unevenly. The judiciary is not independent. Procedures for contract enforcement and dispute settlement are inefficient. Endemic corruption and criminality, weak rule of law, limited bureaucratic transparency, and political polarization have undermined government accountability. Anticorruption efforts are weakened by politicized enforcement and subversion of the judicial process.
The top income tax rate is 25 percent, and the top corporate tax rate is 45 percent. Other taxes include a value-added tax that is being reformed. The overall tax burden equals 8.6 percent of total domestic income. Government spending has amounted to 14.1 percent of total output (GDP) over the past three years, and budget deficits have averaged 3.4 percent of GDP. Public debt is equivalent to 34.0 percent of GDP.
The costs of getting necessary permits and establishing a company have been reduced considerably. A well-functioning labor market has not been fully developed, but labor productivity growth has been slightly higher than wage hikes. Although somewhat less costly in 2016 due to low oil prices, the government’s extensive subsidizing of basic food staples, fuels, fertilizers, and electricity continues to hamper economic growth.
Trade is moderately important to Bangladesh’s economy; the value of exports and imports taken together equals 42 percent of GDP. The average applied tariff rate is 10.7 percent, and the government has taken steps to reduce bureaucratic barriers to trade and investment. Government ownership and interference in the financial sector remain considerable, undermining efficiency and growth.