Online small enterprises demand VAT exemption

Entrepreneurs and economic experts have urged the government to exempt the existing 5% value added tax (VAT) on online-based manufacturing and small enterprises that sell local products.

They told a pre-budget discussion on Sunday that more and more entrepreneurs – mostly women – are switching to e-commerce platforms during the Covid-19 pandemic. The VAT exemption will help the cottage, micro, small and medium enterprises (CMSMEs) to deal with the virus fallout.

The discussion titled "Addressing the Challenges of CMSMEs in the Informal Sector – Creating Opportunities Through Digital Transformation" also demanded special budget allocations in the fiscal 2021-22 for training and research. The programme also called for introducing digital registration so that small enterprises can get government provided facilities.

Entrepreneurs said the government's stimulus packages elude small enterprises due to banking issues although big businesses get their shares. So, the small ventures should be reached out through the micro-lenders such as Palli Karma-Sahayak Foundation and the SME Foundation.

Addressing the programme jointly organised by the SME Foundation and the Association of Fashion Designers of Bangladesh (AFDB), Planning Minister MA Mannan admitted that there is a gap between the government and small ventures.

"The sector is not getting the stimulus due to various complications," he said, adding, "It must be overcome as the sector is making a huge contribution to our GDP."

As the chief guest at the discussion, Mannan said training and research are very important for the development of the small business entities, and assured increasing the allocation for the small ventures in the next budget.

Former Finance Minister AMA Muhith said, "We have been saying for a long time that we are trying to help the SME sector. The sector is burgeoning and already quite huge."

He said, "Since most of the small enterprises are unregistered, we have not been able to find any way to reach them out. New methods need to be discovered if we want to help the informal sector."

State Minister for Industries Kamal Ahmed Majumder said the licencing of the small enterprises should be simplified. As many entrepreneurs cannot even pay the registration fee, the next budget will have to have allocations for them.

He demanded training centres for SME entrepreneurs in every district, and budget allocation for research.

He further said many industrial giants do not repay loans, and the government further provides them with an interest waiver facility. But the SMEs are being deprived of government benefits though they make a significant contribution to the economy.

Dr Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), presented the keynote paper at the discussion.

She said there are about 60 lakh SMEs in Bangladesh, and they are contributing about 25% of the GDP and 40% of the production output. They also create 78 lakh direct employment and provide livelihood to 3.12 crore people.

Dr Fahmida noted the first wave of Covid-19 dealt a mighty blow to the small ventures. Later, their challenges continue as Bangladesh suffers from the ongoing second wave of pandemic.

She said the government had allocated Tk22,000 crore under the first stimulus package considering the vulnerabilities of the SMEs. But the rate of disbursement was slow compared to other packages.

"As of April 11 2021, about 68% of the dedicated fund has been disbursed. Gender-wise disaggregation shows that 94% of the beneficiaries of loans under the package were male and only 6% were female," the CPD executive director noted.

Dr Famida said it is important to ensure speedy disbursement of the subsidised credit among eligible SMEs. Banks specialised in SME financing should be allocated more funds to disburse credit not only to their existing clients but also new borrowers.

She added that banks should explore innovating approaches to disburse credit for SMEs. Banks could also consider disbursing a part of their credit to SMEs through micro financial institutes as well.

Sudipto Mukherjee, resident representative of the UNDP, said there should be initiatives in the upcoming budget to reduce the digital divide in the CMSME sector. At the same time, there should be allocation for research. This sector should get the allocations considering life and livelihood.

Fashion designer Bibi Russell said they have been paying 7% VAT though the sector is said to have a 5% value added tax. She sought the VAT exemption to ensure the expansion of the sector.

Mantasha Ahmed, founder president of the Association of Fashion Designers of Bangladesh, demanded free internet for the women entrepreneurs in addition to the VAT exemption. She said women entrepreneurs specially whose annual turnover is less than Tk10 lakh should get the free-internet facility.

She said small enterprises should get a tax waiver if they hire women employees. This will increase employment for women.