Highlights of findings from the Regional Consultations
Throughout the eight regional consultations, participants discussed the various forms of corruption they encountered in the course of conducting business. As more and more individuals spoke up, it became evident that all regions of Bangladesh face the vast majority of the same challenges. There was little variation between the eight regions regarding their day-to-day corruption experiences. The most prevalent sentiment expressed during these consultations was that corruption has become deeply rooted in Bangladesh’s socioeconomic reality. In each of the eight regions, several participants began their accounts by describing how pervasive corruption had become. Corruption had become so normalized in a society that it is a rarity for something to be accomplished without bribery. Although the vast majority of participants stated in various ways that corruption was endemic to the nation’s economy, the vast majority of participants were also careful not to imply that they were directly facilitating corruption. The vast majority of statements acknowledged the pervasive nature of corruption and the indirect implication that they, too, were susceptible to corruption. However, while completing the exit survey, 74% of participants reported directly encountering some form of corruption. The following are 10 key observations regarding prevalent corruption trends in multiple regions. All 10 observations were mentioned repeatedly by multiple participants at each consultation. Consequently, they can be categorized as problems affecting SMEs on both the regional and national levels.
Difϔiculties in acquiring trade licenses due to excessive bureaucracy
All eight regional consultations discussed the challenges SMEs face in applying for and renewing trade licenses. Several participants said entrepreneurs must visit 13–14 regulatory ofϐices to get approvals and permits before starting a business. The income tax ofϐice, Fire Service and Civil Defense, Department of Environment, Ministry of Labor and Employment, Bangladesh Road Transport Authority, Power Division, and other regulatory bodies depending on the industry must inspect and approve trade licenses. The participants who faced corruption while obtaining trade licenses said that they were held up at regulatory body ofϐices and could only get approval after paying a bribe or using a personal or political connection. Corroborating statements were made by entrepreneurs in all eight regions, with bribes to avoid licensing bureaucracy especially noted. Not all entrepreneurs admited to paying bribes for licenses. Small or micro-enterprises that managed their paperwork seemed to have no trouble obtaining trade licenses, likely because they did not have to visit many regulatory bodies. However, enterprises that needed more regulatory body approvals and could not keep proper internal paperwork due to an alleged lack of knowledge and training were more likely to pay bribes. Participants often admitted to paying small bribes to speed up license acquisition. The general consensus was that the complicated and cumbersome process of acquiring and maintaining trade licenses drove many SMEs to operate without a license, making them more vulnerable to harassment by local authorities and extortion later on.
The culture of tax evasion
The second most discussed topic was Bangladesh’s VAT and Income Tax policy. Tax avoidance and evasion in Bangladesh are well documented. In 2021, Tax Justice Network and Public Services International ranked Bangladesh third in South Asia for tax evasion revenue loss. Many consultation participants said that tax evasion was common in SMEs. All eight regional consultations included lengthy statements on the topic of tax and VAT avoidance. SMEs who participate in tax evasion syndicates argued that if they don’t avoid taxes and VAT, they can’t compete. The current tax and VAT returns level is too regressive for SMEs to survive legally, so they avoid taxes. According to them, SME owners must pay a monthly amount to the authority, which is usually disproportionately high, regardless of whether the business is proϐitable. Many entrepreneurs also stressed the need to keep “good relations” with tax collectors, implying that some enterprises are complicit in the tax evasion ring and that authorities will harass those who
The current tax and VAT
are not. Some entrepreneurs also noted that this demand and
returns level is too
supply of illicit activities are enabled by the government’s inaction, particularly regarding large enterprises’ corruption.
regressive for SMEs to
Thus, it is expected that a small business must participate in this
survive legally, so they
corrupt system to grow.
avoid taxes
Lack of knowledge and training in the SME sector
During the consultations, one theme that emerged was the difϐicult early years that young entrepreneurs had to endure before they fully understood the complexities of running a ϐirm. As a new entrepreneur in Bangladesh, one must understand the complicated trade license process, the government’s VAT return and income tax policies, the bank loan application process, accounting and internal bookkeeping, and short-term and long-term ϐinancial strategies. According to the UNDP, Bangladesh’s pre-university education is far below the global average and fails to prepare prospective entrepreneurs for their challenges. Bangladeshi SMEs receive training and guidance from the SME Foundation. However, almost no entrepreneurs mentioned government agency training during the conversations. According to participants, most new entrepreneurs didn’t know what licenses they needed to start a business and were harassed by local authorities when applying for licenses. They received no government support, and many participants said that they had to pay bribes to get licenses. All participants stressed that new and aspiring entrepreneurs need to be guided so as to avoid the problems that they encounter.
Regulatory bodies extorting SMEs on matters of compliance
Many entrepreneurs complained about the stigma of doing business in Bangladesh during the consultation. According to them, it is a common belief that only those who are corrupt can run a successful business. Participants said that regulatory bodies are biased against businesspeople as they are viewed in negative light. They also claimed that police and government inspectors ϐine SMEs unjustly unless they receive gifts and services, and businesses reported harassment during compliance inspections. Whether or not proper paperwork and procedures are followed, participants reported this type of harassment is not exclusive to the small enterprises but also in medium-sized enterprises.
Difϔiculties getting bank loans due to insufϔicient internal governance and nepotism
Bank loans are difϐicult for SMEs to obtain. Participants said new entrepreneurs are more likely to face challenges in obtainment because they lack bank relationships and are unaware of proper internal governance. They often have to go to third parties for loans and pay high premiums. The participants explained how knowing bank ofϐicials allowed them to use loopholes to get loans. It’s expected that the person who helped them get the loan gets something in return. Participants from several regions stated that banks do not lend to them because they do not consider
Participants from several
them proϐitable and view SMEs as high-risk.
regions stated that banks do
Furthermore, the budgeted stimulus loans promised by
not lend to them because they
the government were not distributed evenly across the SMEs. The majority of SME owners at the consultations
do not consider them proϔitable
who claimed to have the qualiϐications to receive the
and view SMEs as high-risk
stimulus loan did not receive it.
Women entrepreneurs facing particular prejudice trying to acquire loans from banks
During the conversation, the unanimous experience among the vast majority of female entrepreneurs was the various difϐiculties and prejudiced behavior they had to endure to get loans and aid packages from banks. Several women entrepreneurs from multiple regions complained that they did not get the stimulus packages that the government allocated for SMEs. Women who run small businesses by themselves also face the knowledge issues illustrated before. Clearing loans from banks is difϐicult as they might lack knowledge and information about proper procedures and paperwork. However, the banks are also alleged to be predisposed against small female-owned businesses. Several women entrepreneurs at the discussions also stressed the harassment they endured when no male companions were supporting them, especially while asking for business loans.
Import businesses are reliant on the customs evasion syndicate to survive
There were several participants in Dhaka and Sylhet who owned small to medium ϐirms focused on imports. All these participants complained about elaborate collusion between the local customs
Importers also alleged
ofϐicers, banks, and large ϐirms, who are all complicit in tax
that getting an import
evasion and money laundering through under-invoicing and
permit is impossible
over-invoicing. Other than that, importers also alleged that getting
without paying bribes
an import permit is impossible without paying bribes. The current level of such collusion, referred to as syndication, means that a mineral import business can never proϐit unless customs duties are bypassed by paying bribes. Participants said that the current customs duty levied on SMEs and the nepotism in the government about giving import permissions has caused the industry to maladapt.
Syndication with public utility providers
All participants at the regional consultation who talked about public utility rates complained about the exorbitant costs. Complaints came particularly from those in the agriculture sector. They alleged that the current government policy of charging them the same rate as a factory for electricity is unfair.
Entrepreneurs also stated that if new businesses do not join the existing syndicate (i.e. informal networks of businesses) and try to operate legally, they are ostracised by public utility providers.
Excessive market manipulation by syndicates is hampering SME growth potential
Another trend highlighted during the conversation was the common usage of the word “syndicate” among the participants. It would appear from their statements that there were syndicates in almost every sector that were colluding to set the market price. Participants mentioned syndicates in the private education industry, the mango growing industry in Rajshahi, the jute production industry, the poultry raising industries in Barisal and Rangpur, the mineral import industry in Sylhet, the rice farming industry, and the ϐish and shrimp farming industries in Khulna. According to participants, the prevalence of these kinds of market manipulation by syndicates creates a heavy barrier to entry for new and aspiring entrepreneurs. Participants also repeatedly complained about large enterprises’ advantages over SMEs, which could be observed in the blatant market manipulation that larger corporations engage in regarding price gouging.
Lack of action from trade associations due to politicization and improper internal democracy
When prompted to talk about the effectiveness of regional trade bodies and business associations in helping SMEs deal with corruption, almost every participant expressed dissatisfaction. Several participants alleged that regional trade bodies are entirely ineffective in helping SMEs. Even those with more positive opinions on trade bodies stated that, as of now, most of the work done to combat corruption has been ineffective. Other participants expressed that they believe that trade bodies or local chambers are not focused on the SME sector at all. There were also numerous accusations from participants that the ones in leadership roles in several inϐluential trade bodies were propped up through political afϐiliation and were complicit in the ongoing corruption plaguing the SME sector.