Formalising micro merchants can boost the economy

Trade licence is issued by local government to ensure that the enterprises are carrying out their businesses within the limits of respective local government in compliance with the relevant laws of the country. Obtaining trade licence is mandatory for every business entity from the respective local government where it operates.

If any business entity has more than one branch or regional office situated under different local governments, it requires to obtain trade licence for each branch from the respective local government authority according to rule 43 (1) of the City Corporations (Taxation) Rules, 1986.

The purposes of issuing trade licence are to collect tax from the licence holder, specify local limits for operating its business, determine the nature of business (profession, trade or calling) and to determine the duration of licence. So, an enterprise has to operate any business or profession which is mentioned in the licence and has to conduct its business within the area for which the licence is issued.

The enterprise has also to pay tax as charged by the respective local government authority in accordance with Model Tax Schedules published by government from time to time for every financial year. Trade licence remains valid for the financial year and it requires to be renewed annually on payment of the tax within three months of its expiry according to rule 44(5) of the City Corporations (Taxation) Rules, 1986.

Trade licences are issued exclusively in the name of the licensee and are not transferable in any way. This licence may not be used for any purpose other than commercial purposes. If it is detected that any wrong declaration was furnished in the application form of licence, or the terms and conditions under which it was issued are violated, the licence can be cancelled and the licensee shall be liable to penal action as per relevant laws of the country. However, to cancel or take penal action, the licensee has to be given a reasonable opportunity of showing cause.

The relevant laws dealing with the provision of trade licence are – the Local Government (City Corporation) Act, 2009, the City Corporations (Taxation) Rules, 1986 (other local government have similar rules), the Local Government (Municipality) Act, 2009 and the Local Government (Union Parishad) Act, 2009.

It is unfortunate that no law has provided any provision for obtaining trade licence for micro merchants who have no specific location of business and run business with a very small amount of capital over van, walkway etc. Because of not having trade licence, they are unable to open a bank account or MFS (mobile financial services) account and get banking facilities. Though they are contributing to our economic development, we are doing little for them which results in failure to accelerate sustainable and inclusive economic growth for Bangladesh.

A study conducted by United Nations Capital Development Fund (UNCDF) in 2018 found that almost 20 lakh people are involved in the micro-merchant retail sector in Bangladesh and they transact more than $18.42 billion annually and interact with millions of customers every day which is the second-largest market in Bangladesh after the ready-made garments (RMG) market. According to the study, their businesses are most commonly small neighbourhood kiosks, shops or stores with monthly sales ranging from $436 to $3,195.

A large number of micro-merchants, 6 in 10, say they have had a trade licence at some point, meaning that they were formalised businesses at some point. However, micro-merchants are not leveraging any formalised structure to access formalised services such as bank loans, nor are other sectors leveraging micro-merchant segment to expand products and services.

Almost all micro-merchants have mobile phones, and 3 in 10 micro merchants have a smartphone and this number is likely to increase as smartphones are becoming more affordable. Micro-merchants are aware of digital financial services, especially MFS and they appreciate the convenience of services provided by MFS providers. However, only 3 in 10 micro-merchants are currently having an MFS account.

In the age of digital Bangladesh, a large number of people who are contributing to economic development of the country are still deprived of getting digital financial facilities. If such micro merchants are brought under formal financial services and given a licence alternative to trade licence, it will boost up the wheel of economic development of the country.

The Sustainable Development Goal (SDG) Agenda 8 (10) urges for capacity building of domestic financial institutions to encourage and expand access to banking, insurance and financial services for all. The Vision 2021 reaffirms Bangladesh government's commitment to providing financial services at the doorsteps of the citizens in an easy, fast and low-cost manner.

Since Bangladesh is looking forward to transforming itself into a developed economy by 2041, ensuring financial services for everyone, irrespective of status, can contribute to achieve the target of SDG Agenda and Vision 2021.

The government should prioritise the inclusion of micro-merchants and other micro, small and medium enterprises in the formal financial sector to accelerate sustainable and inclusive economic growth. To make sure digital financial services are accessible by everyone, policymakers and financial service providers need to step forward and work together to design policies and find a solution by providing alternative licence. Bangladesh Bank may issue directives to financial institutions to serve such micro merchants by opening bank or MFS account through the licence alternative to trade licence.

The author is a corporate legal practitioner.