How to ease repatriation of NRB income

Like goods, service is commonly used and consumed. However, there is no legal definition of services.

According to the General Agreement on Trade in Services (GATS) under the framework of World Trade Organisation (WTO), services are traded in four modes – mode 1, cross-border services delivery, mode 2, consumption abroad, mode 3, commercial presence for service delivery, and mode 4,  physical presence of natural persons.

In industrial policy of the country, there are some items categorised as the service sectors. The export policy in force identifies few items as export for services.

Cross-border service delivery is like export of goods but executed in non-physical forms – consultancy service, business process outsourcing service, etc. Foreigners visiting Bangladesh purchase our services like hospitality, healthcare, education, etc. This falls under mode 2.

Commercial presence with investment abroad falls under mode 3. Bangladeshi people working abroad are within service mode 4. 

Even though there are bilateral investment treaties with more than 30 countries, the present regulatory framework does not allow residents to invest abroad. To invest, specific permission from the authority is required.

It is reported that the central bank has given permissions to few corporates to make equity investment abroad. The terms of permission and monitoring mechanism thereof require repatriation of profits against the investment.

However, Bangladeshi nationals working abroad have no regulatory binding for them to send their hard earned income to Bangladesh. In FY 2018-2019, Bangladesh received more than $16 billion in remittance.

Record shows such remittances are made by blue-collar workers.

Rarely remittances come from white-collar workers. But they can make equity investment, portfolio investment and also buy diaspora bonds. It is not workable to impose mandatory requirements for repatriation of their income to Bangladesh.

However, remittance channels work to help capital flight. Overvalued currency also discourages to send remittances through official channels.

Unofficial channels are positive sum game to capital remitters and wage remitters.

As such mode 3 is under controlled but payment realisation from mode 4 depends on the will of individuals working abroad. However, access to market under mode 4 helps to employ excess manpower.

Its long term impact brings positive result for countries like ours.

Mode 1 is similar to export of goods from Bangladesh.

Difference from goods export is that services are rendered by resident service providers to non-residents in non-physical form. It does not require customs formalities, declaration to banks and so on. Repatriation is subject to declaration to banks. 

What would happen if such income is not repatriated? No tools are there to identify for service rendered and repatriation of payment thereof.

As service exporters do not need to declare, they rarely face regulatory problems as faced by exporters of goods in case of non-repatriation of payment.

Declaration for export of services is possible to impose but it is not viable since exporters will give declaration of such amount which will be repatriated in the coming days.So what is needed is either to devise a tool to identify non-repatriation or allow service providers to retain income abroad.

It is heard that all countries comply with AML/CFT regulations.

If so, service providers cannot retain funds abroad. But what really happens is obscure. Travel with cash notes is phasing out and international cards are taking the place of cash notes.

It is said that plastic money is secure and safe.

During the early part of this century, digital wallet came into operation, which is user friendly. People can carry digital wallets through their mobile phones.

Transactions by digital wallet are simple.

In general principle, foreigners visiting Bangladesh can withdraw taka from the ATM against the foreign currency held in cards, which can also be used for purchase in point of sales (POS).

The banks from whose ATM taka was given receive payment from card issuing banks abroad through international settlement platform.

Shoppers selling goods receive payments from their acquiring banks who in turn realise payments from card issuing banks abroad as per international settlement process. 

But cards have phased out and they are replaced by digital wallet.

Digital wallet holders visiting Bangladesh still cannot use it.

Immediate arrangement is needed to set network between digital wallet service providers of home and abroad.

This will facilitate foreign wallets to convert into domestic wallets, who will receive reimbursement of their outlay from foreign digital wallet service providers by way of designated banks.

Can a Bangladeshi holding card in taka use them while visiting abroad?

It is possible if the merchants abroad set our banks as acquiring banks.

This way is nothing but conduit way to repatriate money from abroad.

Is it allowed by regulations? Definitely not.

Contrarily, a resident merchant of Bangladesh selling goods to a foreigner through cards can set acquiring banks abroad.

Under this system, resident funds can easily move abroad. It is found frequently that trade is blamed for capital flight through misinvoicing.

Trade transactions are recorded at different regulatory points. If vigilant looks at the points are on, capital flight is rarely possible.

But trade in services basically under mode 1 and 2 can easily facilitate outflows illegitimately. There are systems in place for monitoring trade transactions of physical goods.

But such systems are not possible to apply for trade in non-physical goods.

Global regulations for AML/CFT never allow such transactions. But local regulations are a matter monitored by respective countries.

Monitoring micro transactions are not so easy for regulatory authorities working for macro views.

The non-inflows of a country's income can be accumulated in the global balance of payments statements based on statements of individual states.

The consolidated statement may show mismatch as errors and omissions due to missing link with counterpart countries.

Economic tools depict that this results as unofficial movements of fund.

Private think tanks distribute these figures among different countries in accordance with the methods they use.

Like trade in goods, countries give services waiver in terms of multilateral agreements under the GATS framework.

Bangladesh has given specific commitments in two sectors- telecommunications and tourism. More than 20 developed countries are reported to have given special waiver on service sectors.

Bangladesh can explore the waivers to access those countries especially under mode 1 and mode 4.

For mode 2, we need infrastructure to attract foreigners to receive services from us while they visit Bangladesh.

We are on moving stages.

Whatever the opportunity we can avail, we also need safeguards in respect of repatriation of payments. Otherwise our external earnings will be retained in countries outside Bangladesh.

As seen earlier, monitoring mechanism does not work in case of service delivery in non-physical form.

Hence, regulatory framework to ensure usual repatriation of payment is quite difficult to design.

FATCA was enacted in the US to protect such income, inter alia. It was implemented due to political hegemony the country enjoys globally for its king currency status.

Such act is not possible to be implemented by us. So we need alternatives. 

Earned income without record is not reflected in national accounts. It does not support as a tool for balance of payment.

But if it is properly repatriated, it reflects in current account records of external accounts.

Surplus is used as placement abroad.

It is like our surplus foreign assets managed by government authority. If the fund is placed by private sectors, same result will come.

Supervision mechanism needs to be developed in such a way so that earnings are repatriated periodically.

In this context, authorities should also think of it and allow service providers to utilise their earned funds abroad in income generating safe instruments.