Ahmed Mushfiq Mobarak

The recent terror attacks may affect Bangladesh's business prospects as the incidents have spread panic among foreign businesses and westerners, said an economist.

The nervousness stems from the fact that foreigners were targeted in the attack, according to Ahmed Mushfiq Mobarak, a professor of economics at Yale School of Management, in an interview with The Daily Star.

The attack in Gulshan on July 1 has drawn the attention of many across the world; many foreign businessmen, including westerners, come here as potential buyers for garments, he said. There are also some South Asians who run garment factories here, he added.

Countries like Cambodia, Vietnam and El Salvador are competing with Bangladesh in the same product category and foreign buyers can easily go there instead, said Mobarak.

“It's going to have an impact on the country's propensity to do business,” he said, adding that the terror threat is also going to affect other related sectors, like hotels and restaurants.

Similarly, foreigners may become cautious about allowing Bangladeshis in their countries, he said.

He said Bangladesh's prospects lie in two sectors -- garments and human resources. The country is quite reliant on the rest of the world for its economic prospects. But any event that disrupts the country's connection with the rest of the world is potentially damaging for business.

The apparel sector is one of the lifelines of the Bangladesh economy, employing 44 lakh workers and accounting for more than 80 percent of its export earnings of 34.24 billion recorded in fiscal 2015-16.

Another major source of earning is remittance sent by Bangladeshi migrant workers, which was $14.93 billion in fiscal 2015-16, down 2.54 percent year-on-year, according to official data.

He said all the events that are happening across the world -- not just in Bangladesh, but in countries such as France -- are quite risky, as these might disrupt the country's relations with the rest of the world.

The emerging attitude in the US and the UK towards immigrants might create some friction in the interconnectedness as well, he added.

Mobarak said he was organising an event in Bangladesh for Yale University and some foreigners were supposed to come.

“But they did not come. They cancelled trips,” he said, adding that many are reluctant to come to Bangladesh following the terror attacks.

“A part of the problem is, given the nature of the terrorists, people perceive that terrorists are part of a socio-economic class that resides in Dhaka and are not easy to identify or catch. People are uncertain about how many young people there are with the same attitude.”

Mobarak, who conducted a study on tax compliance in Bangladesh earlier, said giving recognition to taxpayers can help boost revenue collection in countries like Bangladesh, where enforcement capacity is low.

He said the National Board of Revenue has been doing a similar job of giving recognition to taxpayers, but the programmes should be designed such that 95 percent of firms become motivated to pay.

To induce people to pay taxes, whether income tax or VAT, it is important for people to understand where their money is going to. And it is important for them to understand that these are revenue and come back through the provision of public services, he said.

“That type of communication is necessary,” he added. “It is important for people to understand that the traffic and electricity problems are linked to resources that the government has.”

On the VAT system, he said one way to make the system work is to give incentives to buyers.

He cited examples from Brazil and Taiwan; these countries introduced a lottery system for consumers who collect receipts from sellers.

“VAT requires a strong receipts system in place. We do not have that history or culture in our country. To make the system work, they had to figure out how to encourage people to demand receipts,” he said. 

These countries ensured that every receipt would have a lottery number. They later went for national lottery by offering prizes for randomly chosen ticket numbers. Then people started demanding receipts, he added.

He said the lottery system itself was not for tax collection. “But it was a necessary step to create an enforcement system,” said Mobarak.