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Illegal foreign workers and tax evasion hurting the Bangladesh economy

  • Published at 01:31 am April 4th, 2018
  • Last updated at 06:21 pm April 5th, 2018
Illegal foreign workers and tax evasion hurting the Bangladesh economy
Chandra Shekhar (not his real name), an Indian expert of the apparel industry, joined a Gazipur-based ready-made garment (RMG) factory in 2013. In order to continue working in Bangladesh, Chandra was required by law to renew his work permit from the Bangladesh Investment Development Authority (BIDA). He chose not to do so, however, and continued working illegally. This has become a common problem in many manufacturing industries such as those for the apparel, textile, and leather sectors, causing Bangladesh to miss out on large amounts of tax revenue. According to a number of trade analysts, industry insiders and government officials, the problem is being exacerbated by lax monitoring of government authorities concerned, and a lack of proper coordination among the stakeholders and a part of the business community. National Board of Revenue (NBR) sources say around 13,000 foreign employees are currently submitting tax returns. This figure, however, does not match the amount of outward remittance from Bangladesh. “Every year, more than $4 billion outward remittance is being sent from Bangladesh to India,” said a NBR official, seeking anonymity. “So, you can understand how much revenue the government is losing due to tax evasion perpetrated by Indian workers.”
Every year, more than $4 billion outward remittance is being sent from Bangladesh to India
The Dhaka Tribune has learned that a significant number of foreign nationals - mainly from India, Sri Lanka and Pakistan - are currently working in different factories in Bangladesh. Although some arrived in Bangladesh with proper work permits which must be renewed every year, many of them do not bother to.  There are also those who enter Bangladesh on tourist visas and join the workforce after their visas have expired.

Why do we need foreign employees?

The RMG sector currently has the largest pool of foreign personnel, as it needs highly-skilled individuals to keep up with the latest fashion technology and automated machinery. “In the clothing industry, the latest machinery and technology is being introduced frequently, and to operate this technology, this sector needs foreign technical experts,” said Exporters Association of Bangladesh (EAB) president,  Abdus Salam Murshedy. Bangladesh Garment Manufacturers and Exporters Association (BGMEA) President Siddiqur Rahman said RMG owners usually hire foreign employees for top positions, as this particular sector does not have many domestically available experts. “We appoint foreigners following all existing rules and regulations,” he said. “In this industry, there will always be a need for foreign technical experts.” According to insiders, the RMG factory owners deliberately hire foreign experts without due legal process in order to evade taxes and employ them on lower salaries. “I do not agree with the owners’ claim that there are not enough highly experienced local experts in the RMG industry,” a general manager at a Gazipur-based apparel factory said, on condition of anonymity. “There are people who can meet the demand. But I agree that there is a shortage of designers.” This general manager, who has worked in this industry for the past 15 years, could not say why this sector needs to employ so many foreigners on a regular basis.

How many foreigners are working in Bangladesh?

Industry insiders claim that over 500,000 foreign nationals currently working in Bangladesh take away around $5 billion every year. Most of these, they claim, are working illegally. The Dhaka Tribune attempted to verify these figures with a number of authorities concerned, such as the Ministry of Foreign Affairs, the Home Ministry, the Ministry of Labour and Employment, Airport Immigration, and BIDA. According to BIDA data, in the past five years it has provided work permits to 13,147 employees in the commercial and the industrial sector. BIDA also renewed the work permits of 17,389 employees in the same time period. However, there is no clear data about how many foreign workers are currently working in the country. On February 4, 2018, Home Minister Asaduzzaman Khan Kamal informed parliament that a total of 85,486 foreign nationals are working in different sectors in Bangladesh, of whom 67,853 foreigners were owners of business enterprises. Separately, a Centre for Policy Dialogue (CPD) study found that 16% of all apparel factories in Bangladesh employ foreign individuals. “It is a widely discussed issue that there is no accurate data on foreign employment in the country (so) I think it is time to take an initiative together, to handle this matter effectively,” Labour Secretary Afroza Khan told this correspondent. “If there is no system in place, the industry owners could deny any responsibility arising from hiring foreign nationals. An employer should always appoint foreign people through proper channels with valid documents.” BIDA executive member Navash Chandra Mondol said it is difficult to ascertain the number of foreign employees in Bangladesh. “BIDA, Bangladesh Export Processing Zones Authority (BEPZA) and NGO Affairs Bureau are giving work permits, too,” he said. “We do not have a dedicated mechanism with enough manpower.” Meanwhile, a high-ranking Home Ministry official acknowledged that they do not have any data on the number of foreign employees who have taken security clearance. “The government is planning to take an initiative for setting up a digital database,” he added. Foreign employees mostly come to Bangladesh from Sri Lanka, South Korea, China, India, Pakistan, Taiwan and sometimes from European countries as well. They are working in non-government organizations (NGOs), hotels, restaurants, educational institutions, manufacturing industries, hospitals and many other sectors.

How can we reduce dependency on foreign experts?

The ever-expanding manufacturing industry in Bangladesh makes it difficult to reduce dependency on foreign expertise, but it can be lessened with some initiatives. “Public and private universities should introduce subjects such as Merchandising, Fashion Technology, Production Engineering and Lean Management, along with practical courses,” said Salam, managing director of Envoy Textile. “The universities can also help the students get in touch with the industry they are interested in, and Bangladesh’s dependency on foreign experts will gradually drop.”

Government initiatives

The existing laws of Bangladesh dictate that a foreign employee must pay 30% tax on his or her income. A violator has to pay Tk500,000 or 50% of their income tax as a fine, and can be jailed for up to three years.  The company that employed the violator may lose tax holidays or other exemption benefits. NBR Member for Legal and Enforcement of Taxes, Md Serajul Islam, told the Dhaka Tribune that the NBR already has a list of tax evaders, and has launched an initiative to identify foreign personnel that are illegally working in the listed companies. “The drives will be conducted throughout April and May this year,” he said. “We have already identified 15 foreigners working at four companies, who are not paying income taxes.” The NBR has already set up four income tax booths at immigration check posts at Hazrat Shahjalal International Airport, Shah Amanat Airport in Chittagong, MAG Osmani International Airport in Sylhet, and Benapole Land Port. These checkpoints will prevent foreigners who do not have updated tax clearance certificates from leaving the country.
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