Most SMEs cite tax structure as main barrier

Around 57 percent of surveyed small and medium enterprises (SMEs) cited the existing tax structure as the main obstacle to doing business in compliance with the law, according to a report by the SME Foundation.

The trade license renewal process was the next biggest barrier, being identified by 54 percent of entrepreneurs, it said.

Other leading concerns were the additional cost of trade licenses, singled out by 51 percent of respondents, and the complexity of laws and regulations, as pointed out by 44 percent.

Melita Mehjabeen, a professor of the Institute of Business Administration (IBA) at the University of Dhaka, conducted and led the research.

She presented the findings at a seminar today.

The seminar, styled "Informal SMEs in Bangladesh: Formalization Challenges and Way Forward", was organised by the SME Foundation and German development agency Friedrich-Ebert-Stiftung (FES), Bangladesh at Parjatan Bhaban in the capital.

Sadia Noor Khan, an associate professor of the Department of Banking and Insurance at the University of Dhaka, was the co-researcher.

The study surveyed 304 entrepreneurs across Dhaka, Chattogram, Sylhet, Khulna and Rajshahi.

Mehjabeen said more than 74 percent of small and medium entrepreneurs want to do business in line with government rules and regulations.

However, there is a need to simplify the rules. Introducing one-stop services, collateral-free loans and increasing the benefits of doing business in compliance with the law are also necessary, she said.

To do business in accordance with the law, seven certificates are needed from different government departments in India, Mehjabeen said.

But permission from around 34 departments is required in Bangladesh, she added.

As most SMEs are informal, they remain outside the tax net.

So, Mehjabeen suggested the government prepare a comprehensive strategy paper to bring these organisations under existing structures, formalise them step by step and provide monetary and non-monetary incentives to entrepreneurs.

SMEs accounted for almost 25 percent of Bangladesh's gross domestic product in 2018, according to a Planning Division report.

SMEs account for about 90 percent of businesses and more than 50 percent of employment around the globe, according to a 2022 World Bank report.

The contribution of SMEs in the formal sector is up to 40 percent of the GDP in emerging economies, it added.