Employment Conditions

The minimum age for workers in Bangladesh is 18 years in factories and establishments. Contracts are made in the form of a letter of offer. Workers may also be engaged on verbal agreements. In government organisations and in some private organisations as well, a probation period exists for skilled or semi-skilled workers varying between three months to one year. During this period either party may serve one month's notice for termination of the job. In the private sector, the dignity of labour is ensured in accordance with the principles enunciated by the International Labour Organisation’s (ILO) conventions and recommendations.

LABOUR LAWS
In Bangladesh 48 labour laws are now in operation. These relate to wages and employment, trade union & industrial disputes, working environments and labour administration and related matters. The main labour laws are:

 Workmen's Compensation Act 1923
 Payment of Wages Act 1936
 Maternity Benefits Act 1936
 Employment of Labour (Standing Orders) Act 1965
 Shops & Establishments Act 1965
 Factories Act 1965
 Industrial Relations Ordinance 1969

SETTLEMENT OF LABOUR DISPUTES
Contracts or agreements are usually made between the management and the Collective Bargaining Agent (CBA) for the settlement of industrial disputes as per provisions of the Industrial Relations Ordinance 1969.

 In cases where a bipartite negotiation fails, the conciliation machinery of the government is requested by the aggrieved party to intervene and a conciliation process is undertaken. If this succeeds, an agreement is signed between the parties and the Conciliation Officer becomes a witness. If it fails, the party raising the dispute may go for a strike or lockout as the case may be. The government may, however, prohibit the same after one month in the interest of the public. In essential services such as electricity, gas, oil and water supply etc., hospital & ambulance services, fire brigades, railways and the Bangladesh Biman, and ports etc., strikes are prohibited

WAGES AND FRINGE BENEFITS
In the public sector, wages and fringe benefits of workers are determined by the government on the recommendation of the National Wages Commission, which is established from time to time. (Commissions were appointed in 1973, 1977, 1984, 1989 and 1992.) Wages and fringe benefits declared by the government in 1977 have 20 grades of wages. Public sector employees are, however, covered by the Pay Commission which is declared by the government from time to time.

In the private sector, the wages and fringes benefits of workers and employees are determined through a collective bargaining process. Sometimes, private industries follow the public sector wages and salary structure for their workers and employees respectively.

LEAVE & HOLIDAYS
Leave and holidays of workers and employees are regulated by the Factories Act 1965 and the Shops Establishment Act 1965.

SOCIAL SECURITY
The Workmen’s Compensation, Maternity Benefit (Tea Estate) Act 1950, Maternity Benefit Act 1939 and Employment of Labour (standing orders) Act 1965 etc. deal with provident funds and gratuities.

LABOUR UNIONS
The Industrial Relations Ordinance 1969 deals with trade unions in Bangladesh. In any industrial and commercial establishment, a trade union may be formed with 30% of the total number of workers employed. If there is more than one union in any establishment, a collective bargaining agent is determined by the Registrar of the trade union through a sector ballot for a term of two years. Only the collective bargaining agent is authorised to raise industrial disputes and negotiate with the management. The Director of Labour of the government acts as the Registrar of Trade Unions in Bangladesh.

The Industrial Relations Ordinance 1969 provides that any worker or employer/ has the right to form a union/association without previous authorisation. But such a union/association cannot function as a trade union without being registered under the law

WORKING HOURS
Workers in the public or private sector remain at their job for 8 hours daily (including half an hour for meal or rest) with Friday & Saturday as a weekly holiday marking 40 working hours per week. Work in excess of these hours is paid as overtime. The rate of overtime is two hours pay for one hour of work.

Foreign Investment in Bangladesh

Bangladesh is now trying to establish itself as the next rising star in South Asia for foreign investment. The government has implemented a number of policy reforms designed to create a more open and competitive climate for private investment, both foreign and local.

The country has a genuine democratic system of government and enjoys political stability seen as a ‘sine qua non’ for ensuring a favourable climate for investment and sustained development.

Bangladesh has been quick to undertake major restructuring for establishing a market economy, with the major thrust coming from the private sector. The country enjoys modest but steady economic growth. Its current development strategy is based on the premise that the creation and distribution of wealth occurs through the acceleration of growth driven by competitive market forces, with the government facilitating growth and making a clean break from the practices of a controlled economy where private investment is constrained. The government has been gradually withdrawing its involvement in industrial and infrastructure sectors and promoting private sector participation.

The government has moved speedily to translate its policy pronouncements into specific reforms. It has been consistently pursuing an open-door investment policy and playing a catalytic rather than a regulatory role. Regulatory controls and constraints have been reduced to a minimum. The government has steadily liberalized its trade regime. Significant progress has been achieved in reducing nontariff restrictions on trade, rationalising tariff rates and improving export incentives. The introduction of VAT has helped rationalisation of the import tariff and domestic tax structures. The tariff structure and the import policy are kept under constant review to identify areas where further improvements are needed.

On the legal and administrative front, the government has initiated measures to give greater autonomy and independence to the judiciary – a pre-requisite, as viewed by investors, for the restoration of confidence in the judicial system. A permanent Law Reform Commission has already been set up to ensure greater transparency and predictability in the way rules and regulations are made and implemented. Motivated by the simple realisation that state-owned enterprises are a drain on its scarce resources and that these are generally inefficient, costly and slow in responding to changing markets and consumer desires, the country has embarked on a privatisation program, offering substantial opportunities for international investors.

Foreign investment is particularly welcome in the export-oriented industries such as textiles, leather goods, electronic products and components, chemicals and petrochemicals, agro-based industries, green jute pulp, paper, rayon products, frozen foods (dominated by shrimp farming), tourism, agriculture, light industries, software and data processing. Foreign investment is also desired in high-technology products which will help import substitution or industries which will be labour-, as well as technology intensive. 

Favorable Conditions, Markets in Bangladesh

Bangladesh can be considered as a rapidly emerging market pushed forward by its export industries: exports have grown by 40 % in the period from July 2010 to January 2011. This is remarkable in a time when most economies are still suffering from the effects of the global financial crisis. The main products responsible for this growth are knitwear and woven products, together responsible for over three-quarters of Bangladesh’s exports. Interestingly, the fastest growing sector in this period was shipbuilding (with almost 1,400 % growth).1 Apparel exports increased mainly because of the shift of international buyers from China to Bangladesh; due to the increasing costs of production in China, this country has a decreasing competitiveness, and significantly it is losing market to Bangladesh.2 The other opportunity that promises to strengthen Bangladesh’s position further is related to the new rules of EU’s Generalized System of Preferences (GSP), in particular the changed Rules of Origin, which are in place since the 1st of January 2011. In the frst two months of 2011 this has already resulted in a rise of exports of garment products.3 In addition, Japan is also planning to adjust its trade rules in favor of least developed countries (including Bangladesh) from April 2011.

The shift towards Bangladesh could have been much larger were it not for the energy crisis in particular the inability of the grid to meet the demand. As a result of the regular power outages potential new ventures are being deferred and private sector job creation is stalled; in addition, some reports indicate that Chinese, Taiwanese and Korean investors are delaying concrete plans to build factories in Bangladesh, especially in Export Processing Zones (EPZs), until the energy crisis is being solved, although the energy situation in EPZs is better than elsewhere.4 The government has announced plans to deal with the energy shortage on a priority basis, but progress seems slow. The political situation is currently quite stable, although the image of the country as an investment destination could be damaged if labor unrest and hartals fare up once too often.

Bangladesh as an emerging market ofers a number of favorable conditions to Dutch and other frms for doing business: it has a series of cost competitive advantages, it ofers a large domestic market and it has a strategic location near to the fastest growing economies of the world. At the same time, the main constraints will also be identifed. This chapter will be concluded with a brief indication of selected niche markets which deserve special mention..

Favorable Conditions 

Bangladesh is a cost competitive investment destination in several respects. Firstly, it offers a young, industrious workforce with the lowest wages in the region, and English is the second language after Bengla. Secondly, industrial estates, offices and housing for foreigners in the country are often cheaper than in other South and South East Asian countries. Thirdly, Bangladesh enjoys tariff-free access to the European Union (through EU’s Generalized System of Preferences, GSP), Canada, Australia and Japan. Fourthly, it has a proven export competitiveness that can be illustrated as follows:

- Bangladesh offers some of the world’s most competitive fiscal and non-fiscal investment incentives.

- Bangladesh offers the most liberal FDI regime in South Asia, allowing 100% foreign equity with unrestricted exit policy, easy remittance of royalty, and repatriation of profits and incomes.

- Bangladesh offers export-oriented industrial enclaves, Export Processing Zones (EPZ) with infrastructural facilities and logistical support for foreign investors. Bangladesh has recently embraced a more flexible and competitive economic zones regime with the enactment of the Economic Zones Act 2010 which paves the way for private economic zones.

- The Foreign Private Investment (Promotion & Protection) Act 1980 provides protection for investments made in Bangladesh

Lastly, in itself the energy prices in Bangladesh are the most competitive in the region; however, currently there is a shortage of electricity and gas supply (and a stop on new connections) which the government is trying to counter on a priority basis.

Recent international ratings are generally quite positive on Bangladesh’s economic potential (cf. Box 1.1). Also rather positive are the national indices and rankings concerning governance, gender and well being, but the rankings for Dhaka on livability, people risk and social networking are extremely low. With about 160 million inhabitants and a middle class that is rapidly growing in size compared to the other classes, there is an increasing domestic demand for example for consumer goods.

Bangladesh is strategically located near the emerging economic giants, India and China, and near to the ASEAN markets.At the same time, some economic data prompt a cautious outlook. Firstly, Bangladesh has the lowest FDI infow in South Asia (0.8% of GDP). Secondly, the country continues to add 2 million people to its labor force every year and unemployment is currently at 8% while underemployment is much higher.

Company Secretary as Independent Director

The concept of independent director (ID) remains of primary importance in protecting investors amidst a more demanding economic and regulatory environment. In Bangladesh, in particular, there is increasing recognition of the pivotal role of IDs - play in providing an independent, objective view and in balancing the interests of different stakeholders. It is not disputed that there has been an ever increasing role and importance of IDs to further strengthen the corporate governance (CG) of listed companies as they are the key to good CG. The need for quality ID is imperative particularly in light of the development of our economic globalization and recent examples of massive corporate failures which forces us effectively to play by a new set of rules to conform to globally accepted practices. That is, one that demands much greater integrity, transparency and accountability than in the past.

There have been substantial changes concerning CG rules, although each jurisdiction may emphasise different aspects of CG after taking into account the special features in its local community but one thing is certain across all jurisdictions: the increasing burden placed upon IDs of listed companies. Bangladesh is also not an exception to this. There have been significant changes in the Guidelines on Corporate Governance Practices and the introduction of the ID is one of them. The present revised Corporate Governance Guideline – ‘Comply basi's’ (BSEC, 3rd July, 2012) replaced the former Guideline of Corporate Governance – ‘Comply or explain basis’ (BSEC, 20th February, 2006). This recent change to the CG Guideline is evidence of the growing significance of independent directors to act as not only valuable strategic advisers in providing to the board valuable knowledge, expertise and experience but also corporate guardians of shareholders’ interests.

Independent directors’ requirement is gaining increasing significance and importance. The statutory framework exists with regard to appointment of ‘Independent Directors’. Such framework also prescribes certain qualifications and attributes to IDs that should be understood in the right perspective. However, boards of listed companies in Bangladesh are facing extreme snag on how to identify the right one as ID apart from how increasing demand for IDs will be met. Keeping this perspective in mind, one should consider the role of company/chartered secretaries (CS) as ‘independent directors’. How company/ chartered secretaries, by virtue of their knowledge and training is eminently to fit in the role of independent directors, is portrayed hereunder.

The Profile of a Company Secretary 

CS has important fiduciary and company law responsibilities. The CS is the nodal point for the Board to get feedback on the status of compliance by the organization in regard to provisions of the company law, listing agreements, BSEC regulations, shareholder grievances, etc. CS occupies a pivotal position in ensuring that their companies function in certain critical areas and such functions are value based. While accounting could be properly described as a mirror reflecting the entire face of the company and auditing could be considered as the function that adds credibility to what are stated in the financial statements. CS should function as conscience keepers. It is this role that would earn them an enviable position. It depends on individuals. It depends on his or her vision, the length and breadth of his or her profile, preparedness, presence of mind and involvement. So, it is very clearly that within an organization, a CS plays an important role, which is unique in nature. However, this is not the role that a CS as an ‘Independent Director’ is expected to do. ‘Independent Directorship’ is a different cup of tea. It is important to know what is expected of ‘Independent Directors’. This will help CS to cause a substantial shift in their role to become ‘Independent Directors’.

Company Secretaries as ‘Independent Directors’

According to BSEC Guideline, independent director shall be a knowledgeable individual with integrity who is able to ensure compliance with financial, regulatory and corporate laws and can make meaningful contribution to business [Condition 3.1 (i)]. The person should be a business leader/ corporate leader/ bureaucrat/ university teacher with economics or business Studies or law background/ professionals like Chartered Accountants, Cost & Management Accountants, Chartered Secretaries. The independent director must have at least 12 (twelve) years of corporate management/ professional experiences [Condition 3.1 (ii)]. In special cases, the above qualifications may be relaxed subject to prior approval of the Commission [Condition 3.1 (iii)].

Independence is a state of mind and it could change from time to time. In this perspective one has to see whether CS could add value to a company as its ‘Independent Directors’. While occupying the position of an ‘independent director’, a CS should not attempt to leverage his professional achievements to obtain any assignment for his firm or any entity in which is he is interested. He must understand that he should be able to speak out what he thinks about an arrangement. If he looks up to the company or its promoters or managers for favours, he cannot be independent in the true sense of the word. Experienced CS, will certainly have an edge over others. An experienced CS carries with him enormous amount of knowledge. In view of the position he would have occupied in his career as a CS of any large enterprise, he would have become so matured to understand not only what is obvious but also what is not obviously revealed. A CS has the unique distinction of having the required skills to analyze and understand the real import of an arrangement or transaction or proposal. A CS would be the best-suited person to keep his observations on the one side and consider the objectives and perspectives of the proposals or arrangements on the other side and consider them in the light of the letter and spirit of the applicable regulatory framework. He will be able to not only assist the Board in its decision making process but also add value. The ability of CS to understand the growing complexities of modern day business, their co-coordinating skill sets would help them become lead ‘Independent Directors’. As conscience keepers, Company Secretaries become the befitting professionals to lead as ‘Lead Independent Directors’.

Conclusion 

Following the implementation of the revised CG Guideline, the independent directors are expected to play more important roles and have more responsibilities, as evidenced by their representation in the different board committees which are required or recommended to be set up, as the case may be. In an attempt to advance the pivotal role of independent director in CG, representation of company/chartered secretary as ID on board will definitely aid in improving the standards of CG. Besides the apparent benefits, the presence of company/chartered secretary (as ID) will strengthen the hands of the CEO in resisting the usual pulls and pressures to which the entities are subject to. Company/chartered secretaries who have the ability to visualize the complete ramifications of any arrangement or proposal or transaction would be able to function effectively. As ‘Independent Directorship’ is a coveted post, original application of mind is needed to occupy such positions. One must understand the nature of the job and train his thoughts accordingly. In order to be ‘independent directors’, company/chartered secretary have to be courageous and confident and their approach should be broad.
  

Money Laundering Regulations

In line with international initiatives and standards, Bangladesh promulgated the Money Laundering Prevention Act (MLPA), 2002. Subsequently, MLPA, 2009 was enacted to expand the definition of money laundering and coverage of the offence. To strengthen the AML/CFT regime of Bangladesh and meet the international standards, MLPA, 2012 was promulgated repealing the MLPA, 2009 and Anti-Terrorism Act (ATA), 2009 as amended in 2012 and 2013. Both Acts have empowered Bangladesh Bank (BB), thus Bangladesh Financial Intelligence Unit (BFIU) to perform an anchor role in combating money laundering and terrorist financing.

According to section  25 (2) of MLPA, 2012, if any reporting organisation violates the directions mentioned in sub-section (1) of section 25 of MLPA, 2012, Bangladesh Bank may impose a fine of at least BDT50,000 but not exceeding BDT2,500,000 on the reporting organisations. Additionally, Bangladesh Bank may cancel the license or the authorisation for carrying out commercial activities of the said organisation or any of its branches, service centres, booths or agents. Alternatively, the Central Bank shall inform the corresponding registration or licensing authority about the violation for the relevant authority to take appropriate measures against the organisation.

Exchange Controls in Bangladesh

Bangladesh operates an exchange controlled economy under the Foreign Exchange Regulation Act, 1947. All inward and outward remittances are regulated by the Central Bank of Bangladesh (that is, Bangladesh Bank). Foreign investor rights are protected under the Foreign Private Investment (Promotion   and Protection) Act, 1980 which ensures legal protection against nationalisation and expropriation. It also guarantees non-discriminatory treatment between foreign and local investment, and repatriation of proceeds from sales of shares and profits. Bangladesh Bank has outlined relevant procedures and formalities for all inward and outward remittance in its Guidelines for Foreign Exchange Transaction. The Guidelines cover the procedures for, among others:

• Foreign dealings in securities

• Remittance of royalty/technical assistance fees

• Foreign ownership

• Mergers and acquisitions

• Divestments

• Remittance of profit, dividends, capital gains

• Foreign and local borrowings

• Retention quota of exporters

Any transaction that has not been outlined in the Guidelines for Foreign Exchange Transactions must obtain specific approval from the Bangladesh Bank.

Bangladeshi ‘Taka’ (BDT) is convertible for current external transactions. Individuals or firms resident in Bangladesh may conduct all current external transactions, including trade and investment related transactions, through banks in Bangladesh authorised to deal in foreign exchange (Authorised Dealers) without prior approval from Bangladesh Bank.

Similarly, non-resident direct investment in industrial enterprise and non-resident portfolio investment through stock exchanges do not require prior approval of the Bangladesh Bank.

Remittance of post-tax dividends or profits on non-resident direct or portfolio investment does not require prior approval. Sales proceeds, including capital gains on non-resident portfolio investment, may also be remitted abroad without prior approval.

Prior approval from Bangladesh Bank is required for the repatriation of sale proceeds of non-resident equity investment in public limited companies that are not listed on the stock exchange, and private limited companies. In determining the repatriable amount, Bangladesh Bank works out the net asset value of the shares on the basis of audited financial statements as on the date of the sale and the net asset value is thus calculated is considered repatriable.

Overview of Various Taxes and Duties

Corporate Income Tax is discussed in our earlier post. 

Personal Income Tax (PIT) 

Income tax provisions can be found in the Income Tax Ordinance 1984, the Income Tax Rules 1984 and all relevant notifications under the Ordinance. In addition to payment of tax at a specified rates, an individual is supposed to pay a surcharge if he/she has net wealth exceeding BDT22.5 million as shown in the statement of assets and liabilities. The surcharge is calculated on the amount of tax payable after deduction of investment rebate. An individual that has net wealth exceeding BDT22.5 million shall pay a surcharge.

Value Added Tax 

VAT is imposed on goods and services at the stages of import, manufacturing, supply, and trading. VAT is imposed on services provided in Bangladesh and also on the services rendered from outside Bangladesh. A uniform VAT rate of 15 per cent is applicable for both goods and services. A registered VAT taxpayer is entitled to claim back the VAT paid on purchase of inputs subject to compliance with the provisions of VAT laws. 15 per cent VAT is applicable for all business or industrial units with an annual turnover of BDT8,000,000 and above, except in the cases specified in VAT laws. Turnover tax at the rate of three per cent is levied where annual turnover is less than BDT8,000,000. Truncated rate also applies in the cases specified by VAT laws which have been determined on the basis of assumed percentage of value addition. A taxpayer paying VAT at the truncated rate will not be entitled to claim input VAT rebate. Under the 2015-16 budget, the tax is reduced to 0.1 per cent of turnover for the first three years for industrial undertakin.

Supplementary Duty (SD) is applicable as per the 3rd Schedule of the VAT Act, 1991, at the rates specified for particular goods or services. Exemption of VAT or imposition of VAT at zero per cent is regulated by Section 3 (Export or Deemed Export), Section 14 (goods/service declared by the government), 1st and 2nd Schedule of the VAT Act, 1991

Customs duty

Bangladesh levies customs duty on imports using the Harmonised Tariff System for tariff classification. Imports are generally taxed at the following rates, unless specifically exempted:

• Capital machinery: one per cent

• Basic raw materials: five per cent

• Intermediate raw materials and semi-finished products: 10 per cent

• Finished products: 25 per cent

Exports are generally exempt from customs duties

Supplementary Duty

Supplementary duty is levied on luxury goods imported into Bangladesh as well as non-essential or socially undesirable goods produced and supplied in the country. The rates vary from 10 to 500 per cent depending on the nature of the goods.