BA 402 – Comparative Industrial Relations
Instructor: Lyman A. Hussey
March 2007
Employment Relations of
Bangladesh
by
Roman Walker
Index:
Page:
Overview…………………………………………………..3
Labour and Unions……………………………………….3
Economy…………………………………………………..4
Education System…………………………………………5
Legal System………………………………………………6
Labour Laws……………………………………………….7
Tax Structure………………………………………………8
Treatment of Foreign Nationals………………………….9
Grameen Bank……………………………………………10
Overview:
Bangladesh is a small country, located North-East of India, which
surrounds it. Bangladesh borders India in the West, North, and East. It
also borders to Burma in the South-East and its South coast is located
at the Indian Ocean. Bangladesh is 130,200 km? big and has a population
of 123,633 million people (2000). The capital of Bangladesh is Dhaka.
The majority of Bangladesh’s countryside is lowland at the bottom end of
the Ganga and Brahmputra. Mountains can only be found in the East and
South-East of the country. The climate is subtropical to tropical
Monsun-climate.
98% of the population are Bengals. The other minorities are Bihari and
some mountain tribes. Bangladesh is one of the thickest populated
countries in the world which can hardly cope with the annual economical
and social growth of 3%. The state religion is Islam.
Labour and Unions:
The labour force in 1998 was estimated at about 64 million workers. 11%
of the civilian labour force was employed in the industrial sector, 63%
in agriculture, 26% in the service industry in 1996. It is not possible
to rely on statistics because of a huge unreported black market. The
unemployment rate in 2001 was at about 35%.
The structure of the labour market and the role of unions in Bangladesh
are can be compared to those in other South Asia countries. Bangladesh
has three types of labour markets: formal, rural informal, and urban
informal. The formal labour market is characterized by a contractual
relationship between the employer and the employee and supported by
labour laws and regulations that protect workers, such as minimum wages,
allowances, and limitations on the employer’s ability to fire his
workers. The other types of labour markets are not covered by any labour
regulations. The informal sector dominates the labour market surface. In
1991, 47,2 % of the labour force were classified as unpaid family
workers, 15,4% were self-employed, 13,9% were classified as casual
workers (day labourers), and only 11,7% had regular full time wage
employment.
Joining unions is granted by the Bangladesh’s constitution, as well as
the formation of a union only after a government approval. Still in some
cases people are harassed and fired who tried to organize a union.
People working in the government civil servants, military, and police
are not allowed to join unions with the exception of railway, postal,
and telegraph workers. Instead they are allowed to join associations
which perform similar functions like the unions. Workers of the EPZ
(Export Processing Zone), ruled by the Bangladesh Export Processing
Zones Authority, an official organ of the government to promote,
attract, and facilitate foreign investment in these zones, primary
formed to provide special areas where potential investors would find a
congenial investment climate, free from cumbersome procedures, are not
allowed to form unions, although the government promised to relax this
restriction in 1997.
Although the size of the formal sector is so small, Bangladesh has a
large number of labour unions. In 1992 there were 4065 registered unions
with a total membership of 1.648.783, which are only 3% of the labour
force. The unions are organized in 700 union federations, which are very
active. They entered into agreements with the government in 1984, 1991,
and 1992 to raise legislation labour benefits and protections, whereby
the government provided a high protection to the domestic industries,
like textiles, soap and detergents, iron and steel. There is also a
strong resistance to trade liberalization in Bangladesh, mostly from the
labour unions.
There is a strong connection between unions and political parties.
Almost all unions are affiliated with a political party. Of course you
will also find unions that are militant and do engage in intimidation
and vandalism, lost production, and transportation delays causing missed
shipping dates for exports. Also battles occur between members of rival
unions regularly.
There are no special regulations in the Bangladesh law to ban
discrimination by employer against union members and organizers. Usually
private sector employers do not like any union activity and sometimes
even work in collaboration with the local police. The Registrar of Trade
Unions tries to come against such activities but is often not powerful
enough to do anything.
Economy:
Bangladesh improved its economic sector enormously since its
independence in 1971. It is world-famous for his largest and
comprehensive garments industry. The first years after Bangladesh’s
independence the economy was characterized by its large jute industry
but were overtook by polypropylene products soon.
The biggest part of the GDP belongs to service sector, followed by the
industry and agriculture. Bangladesh’s main produced commodities are
jute manufacturing, cotton textiles, garments, tea processing, paper
newsprint, cement, chemicals, light engineering, sugar, food processing,
steel, and fertilizer.
Soon after independence Bangladesh had a peak economic growth of 57%.
Later the economic growth decreased to 29% in the Eighties and 24% in
the Nineties.
The rising population forced Bangladesh to increase its food outcome. It
became the third largest rice producing country in the world. Also wheat
production increased in recent years, but nevertheless the country faces
serious nutrition risk of 10% to 15% of the population. Bangladesh’s
agriculture is dependant on the monsoonal cycle and still faces problems
in power supply throughout the country, which has large reserves of
natural resources like gas, as well as some limited like coal and oil.
Since Bangladesh’s independence the country received about $30 billion
in aid and loans from foreign donors, including the World Bank, Asian
Development Bank, UN Development Programme, the US, Japan, Saudi Arabia,
and West European countries. But the poverty level of Bangladesh is
still high: 138 million people live beneath the poverty line, which is
the highest amount of poverty in South Asia. There is also lack in
quality of the social service in the country.
The major problems still remain, although improvements have been made by
the government: inefficiency of state-owned enterprises, a rapidly
growing labour force that cannot be absorbed by agriculture, inefficient
power supply, and slow implementation of economic reforms. Nevertheless,
the situation for foreign investors and the liberalization of the
capital market changed positively, as well as agreements with foreign
companies to export oil and gas, better distribution of cooking gas
within Bangladesh, building of pipelines and power stations. Foreign aid
also declines, exports rise ($10.5 billion in 2005) and investments
increase.
To summarize the current economic situation: The GDP was $275 billion in
2004, the GDP-real growth rate was 5.2% in 2005, GDP-per capita was
$2,000 in 2004, and aid-per capita was $10.1 in 2003.
The compositions by sectors of the GDP of 2004 are 20.5% by agriculture,
26.7% by industry, and 52.8% by services. The inflation rate of consumer
prices was at 5.8% in 2000. The unemployment rate was at 3.6% in 2002.
Exports with the amount of $6.6 billion (2001) went at 31.8% to the
United States, 10.9% to Germany, 7.9% to United Kingdom, 5.2% to France,
5.2% to the Netherlands, and 4.42% to Italy. Exports grew by 21.63%
2006. Imports with the amount of $8.7 billion (2001) came from India
(10.5%), European Union (9.5%), Japan (9.5%), Singapore (8.5%), and
China (7.4%). Imports grew by 12.05% last year. Foreign Direct
Investment was at $800 million in 2005.
Education System:
During the Nineties the Bangladesh’s government noticed that investments
into the education system result in better future economic performance
of the country. Therefore highest allocations in the national budget
were made with topmost priority to human resource development, by
implementing the “Education for All” –program in the country. Compulsory
primary education, free education for girls up to class ten, stipends
for female students, food-for educational total literacy movement and
nationwide integrated education are some of the major programs imposed
by the government in the education sector.
The education system is divided into four levels. Children start at a
primary school until grade five and go to the secondary school (from
grades six to ten) afterwards. Higher secondary school takes from grade
eleven to twelve, followed by tertiary schools. English medium education
is also provided by some private enterprises, that offer “A”- and “O”
level courses. An Arabic medium Islam-based education is offered by the
Madrasa system for boys and girls, supervised by the Madrasa Board of
Bangladesh. Hindus and Buddhists can go for religious education in the
institutes “Tol” and “Chatuspathi”.
There are 11 government universities and about 20 private ones in
Bangladesh. The Bangladesh University of Engineering and Technology, the
Bangladesh Agricultural University, and the Bangabandhu Shaikh Mujib
Medical University are the specialized ones. All in all Bangladesh’s
education system consist of four engineering colleges, 2845 colleges and
institutes, 12553 secondary schools, and 78595 primary schools.
An open university has been brought up in Bangladesh to ensure higher
education accessible for all.
Still the literacy rate of Bangladesh remains low, with a high
difference between male and female literacy rates. But the rate
increases since government and NGO’s are involved in the restructuring
of the education system. In 1998 Bangladesh won the UNESCO International
Literacy Prize for its steadily increasing rate.
Legal System:
Bangladesh’s legal system, which is based on the English common law, can
be compared to those of neighbouring countries. Although law is based on
the English system, you will also find codes of civil and criminal laws
in it. These are established for some Hindu and Islamic religious
principles for marriage, inheritance, and other purposes.
The constitution, which is the fundamental law of the country, was
founded in 1972, one year after Bangladesh’s independence. In 1982 the
constitution was suspended and reinstated in 1986.
The system itself consists of a Low Court and a Supreme Court, which
hear both – civil and criminal cases. The Low Court is built up of
administrative courts and session judges. The Supreme Court is built up
of a High Court, whose task it to hear original cases and review
decisions of the Low Court, and an Appellate Court which hears appeals
from the High Court. The trials are public, the right to counsel and
appeal is present, and a system of bail also exists. Recently upper
level court, that have exercised independent judgement, argue against
the government on a few cases in criminal, civil, and political trials.
The most significant problem of Bangladesh’s law system is the backlog
of cases.
The World Bank helped Bangladesh’s government to enforce a huge project
to reforn the legal system, to make it more efficient and accountable.
So called “Legal Aid Committees” were established to assist the poor.
Also Metropolitan Courts of Session were created. Today, there is also a
Law Commission to reform and update existing laws, and a Human Rights
Commission.
Labour Laws:
Despite the problems Bangladesh has with its legal system, well
structured labour laws were established to protect workers from
exploitation.
The regular workweek is 48 hours long, divided into an eight-hours day,
six days a week. Overtime must be voluntary and should not exceed 12
hours a week, making a 60-hour workweek. Another fact is that overtime
must be paid at a double the standard salary. Women are not allowed to
work night shifts or after 8 p.m. The labour law also states that there
must be one rest day off per week. Usually these days are Fridays or
Sundays.
A country-wide minimum wage is set at $8 cents an hour. The minimum
wages within an Export Processing Zone are set at $22 cents an hour for
a sewer and $18 cents an hour for a helper. The EPZ provides numerous
other benefits for its workers like rent subsidy, transportation
subsidy, medical allowance, religious festival bonus, and a 17 days
vacation.
The labour law also set legal benefits for workers, such as 14 days for
sickness a year with a full year salary, ten personal leisure time days
a year that are paid, ten religious festival holidays with a full pay,
and three months’ full paid maternity leave. A company with more that 50
employees is also required to have a day-care centre.
In terms of healthcare factories with more than 500 workers are required
to have a healthcare clinic and be dispensary staffed by a doctor and/
or a nurse. Any kind and all forms of physical punishment are outlawed
and punishable by the state law.
When a worker wants to legally leave a factory, the employer is required
to pay a severance of 5000 taka, which is about $87.11 for each year
worked in the factory by the worker.
The right to organized and bargain collectively are legal right stated
by Bangladesh’s constitution and labour law with the exception of Export
Processing Zones, where these laws do not apply.
Although there are rights set by the government, they are hardly
enforceable and rarely controlled by the state institutions. Public
sector wages are set by the National Pay and Wages Commission and may
not be disputed. Although, there are minimum wages set by the government
for the private sector, in real they are still ruled and set by the
industry. Collective bargaining rarely occurs, because high unemployment
exists and employees are afraid of loosing their jobs. And although the
legal workweek is set to 48 hours with one day off, this law is rarely
enforced, especially in the garment industry. Children under the age of
14 are not allowed to work in factories, but may work under certain
circumstances in other industry sectors. Still such restrictions are
neglected by employers and you will find children working in every
sector of the economy. In 2002, the government estimated that 6.6
million children between the ages of five and 14 years were engaged in
all types of employment activities, many that were harmful to their
well-being.
Tax Structure:
A Bangladesh resident is considered to be a person who spends 182 days
within the country in an income year. In case a person has been in the
country for 90 days in the income year and 365 days in four years –
preceding this year, this person will also be considered a resident.
Total taxes in Bangladesh are divided into direct and indirect taxes.
Direct taxes in Bangladesh consists of taxes on income (income tax,
corporation tax, agricultural income tax) and taxes on property (wealth
tax, gift tax, estate duty, capital gains tax, urban property tax, house
rent, land revenue, registration, and non-judicial stamp). Taxpayers in
Bangladesh can be categorized into three main groups. The elite group
consists of corporate taxpayers (24,770) that make up about 3.02% of the
total taxpayers. The next group consists of wage earners or salaried
taxpayers (154,245), who shares about 18.81%. The largest and the last
group consists of all other remaining taxpayers, mainly those who have
an income from business and profession (640,795) that make up about
78.17%.
Personal income taxes are unevenly distributed among the registered
taxpayers. In reality a major portion of taxes is paid by small group of
people with higher marginal rates. A high number of registered taxpayers
always remain in lower income groups, for whom it is easy to receive tax
incentives or tax exemptions and who share only a little burden of
taxes, often at lower marginal rates. These taxpayers are often small
and medium traders and manufactures. There are also a lot of untaxed
investments because of tax amnesty.
Personal Income Tax Bangladesh 2002
Tax Exemption Limit Annual Income (Taka) Statutory Tax Rates Minimum
Altern. Tax Payable
75.000 On first 75.000 0%
On next 150.000 10%
On next 150.000 15% 1.200
On next 250.000 20%
On Balance Income 25%
As one can see the maximum personal taxation is 25%.
On the company level a business pays 15% tax of total income or 100,000
taka whichever is less. Small and cottage industries receive a tax
rebate of 5% to 10% depending on the income and production volume. There
is no tax obligation for a firm on the first earned 60,000 taka, 10% on
the next 40,000 taka, 15% on the next 50,000 taka, and 20% on the next
150,000 taka of the total income. All in all there is 25% tax on the
balance of total income. Corporate tax rates for industrial companies
whose shares are publicly traded are 35% and the rate of those whose
shares are not publicly traded is 40%. Banks, financial institutions,
insurance companies, and local authorities pay 45% income taxes.
Treatment of Foreign Nationals:
The number of foreign nationals seeking work permits in the Board of
Investment increased manifold recently after the caretaker government
implemented measures against overstay of foreigners in Bangladesh.
Although there are regulations many foreigners enter the country under
tourist visas and leave the country without taxes after working in the
computer industries and taking the advantage of inadequate measures to
check the malpractices by the previous governments. Therefore the
government implemented expensive work permits fees or work permit
renewal fees. The government fee for issuing a work permit, as well as
its renewal for one year is 5.000 taka.
Foreigners in Bangladesh usually work in high technology-oriented
industries. Foreign nationals coming from India, Thailand, the
Philippines, Myanmar, and China stay in Bangladesh for a long period of
time for working purposes. The government has no specific statistics on
how many foreign nationals work in the country without having a valid
work permit or staying there illegally. Analysts believe that there are
about 0.1 million to over 0.2 million foreigners staying in the country
illegally. A regulation states that a foreign national staying in
Bangladesh illegally for more than 36 days will have to pay a penalty of
5.000 taka. The new guidelines also dictate that any foreign national
who wants to stay here for more than 30 days has to register with the
Special Branch of police. A foreigner has to pay a fine of 500 taka per
day if he or she overstays here for up to 15 days, 1.000 taka a day for
16 to 26 days, and 2.000 taka for 26 to 37 days. The new guidelines have
relaxed the visa requirements for the Bangladeshi Diaspora and their
Bangladeshi or foreigner wives.
Earlier, on the eve of SAARC summit in Dhaka, the immediate past 4-party
alliance government ordered a crackdown on the foreigners staying in
Bangladesh illegally. Some ‘suspicious’ foreign nationals were
identified and asked to leave the country. The suspected people included
some Pakistani, Libyan and Indian nationals.
In fact, the decision to deport the foreigners came two days after the
deadly bomb attack in the Indian capital of New Delhi and the government
has started revising security arrangements for the two-day summit, which
was attended by the heads of states of seven south Asia countries.
Meanwhile, some local businessmen alleged that some ‘illegal’ foreigners
were doing indenting and other businesses in the country, exploiting its
liberal import regime. They are doing it without registration,
certification or any other legal ways and causing a huge loss to the
national budget. Such foreigners do not pay any taxes in connection with
the ‘businesses’.
Grameen Bank – the bank for the poor:
One of the most worth to mention successes of Bangladesh is its famous
Grameen Bank, which reversed the conventional banking practice by
removing classical banking boundaries like the need for collateral. The
bank’s system is based on mutual trust, accountability, participation
and creativity. The Grameen Bank provides credits to poorest of the poor
in the rural areas of the country without any collateral. Now poor
people can receive a credit, which would not be possible in a regular
bank system, because they are poor and hence not bankable. The founder
of that famous bank is Professor Muhammad Yunus who won the Nobel Peace
Prize last year.
As of January, 2007, it has 6.95 million borrowers, 97 percent of whom
are women (because women are the better money keeper and manager,
according to the philosophy of the bank). With 2343 branches, GB
provides services in 75,359 villages, covering more than 90 percent of
the total villages in Bangladesh.
Now, poor people can receive small short-term loans (mostly from two
weeks to almost a year) with a relatively high interest rate, which
however is not that high percept by the borrowers because of the small
borrowed amount of money. The payback rate is over 98%.
„Der Brock Haus“, Verlag F.A. Brockhaus GmbH, January 2000, ISBN
3-7653-3641-6
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ml
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The World Bank Economic Review, VOL. 11, NO. 1
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