ICSB Journal jan mar 2011 by ICSB Bangladesh

ISSN : 1998-1597

Volume : XIII Issue : 1 January - March 2011

BIG CRASH SHARE MARKET IN BANGLADESH

Institute of Chartered Secretaries of Bangladesh (ICSB) A

S t a t u t o r y

B o d y

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P a r l i a m e n t

CONTENTS Institute of Chartered Secretaries of Bangladesh (ICSB) Institute of Chartered Secretaries of Bangladesh (ICSB), established under an Act of Parliament i.e. Chartered Secretaries Act 2010, is the only recognized professional body in Bangladesh to develop, promote and regulate the profession of Chartered Secretary in Bangladesh.

THE COUNCIL 2010-2013

EDITORIAL

FROM THE PRESIDENT

INSTITUTE NEWS

The affairs of the Institute of Chartered Secretaries of Bangladesh (ICSB) are managed by a Council consisting of thirteen elected members and five nominees of the Government. The major contribution of a Chartered Secretary is in the corporate sector. Chartered Secretary is a requisite qualification to become a Company Secretary. Company Secretary is an important professional, aiding the efficient management of the corporate sector. Company Secretary is a statutory officer under the Companies Act 1994. According to Securities and Exchange Commission (SEC) all the listed companies should have a Company Secretary. Company Secretary is the compliance officer of the company, who has to interact, coordinate, integrate and cooperate with various other functional heads in a company.

THE COUNCIL : 2010-2013 Mohammad Sanaullah FCS

: President

Md. Shahid Farooqui FCS

: Senior Vice President

M. Naseemul Hye FCS

: Vice President

Md. Monirul Alam FCS

: Treasurer

A. K. A. Muqtadir FCS

: Councilor

Mohammad Asad Ullah FCS

: Councilor

Itrat Husain FCS

: Councilor

N.G.Chakraborty FCS

: Councilor

Md Abdus Salam FCS

: Councilor

Safiar Rahman FCS

: Councilor

Md. Selim Reza FCS

: Councilor

Md. Akter Hossain Sannamat FCS

: Councilor

Gopal Chandra Debnath ACS

: Councilor

Md. Shawkat Ali Waresi Joint Secretary, GoB : Councilor Moinul Islam Joint Secretary, GoB

: Councilor

Nasreen Begum Joint Secretary, GoB

: Councilor

Muhammad Yasin Ali Member, SEC

: Councilor

ARTICLES

Buy-Back of Shares M. Naseemul Hye FCS

Stock Market Detour A. K. A. Muqtadir FCS

The Black Economy of Bangladesh: Taxing Missed Millions Md. Shawkat Ali Waresi

Special Leadership Intervention Akhter M Chaudhury FCA, FCS

(The views and opinions expressed in the articles published in this Journal are those of the writers only) Published by the Institute of Chartered Secretaries of Bangladesh (ICSB) 107 Kakrail (Ground & 1st Floor) G.P.O. Box. : 3100, Dhaka-1000, Bangladesh Phone : 880 2 934 9578 & 933 6901 Fax : 880 2 933 9957 E-mail : secretary@icsb.edu.bd icsb@icsb.edu.bd Web : http://www.icsb.edu.bd

Ahmedur Rahim Registrar, RJSC, GoB : Councilor

EDITORIAL BOARD Editor

: Itrat Husain FCS

Members

: Mohammad Sanaullah FCS Md. Shahid Farooqui FCS M. Naseemul Hye FCS Md. Monirul Alam FCS Dr. A. K. M. Delwar Hossain

Design & Production : ROOT (A Concern of Tradex BD)

Subscription Rate For Students : per copy Tk. 100; per year Tk. 350 Others : per copy Tk. 150; per year Tk. 560

The Council

THE COUNCIL

2010-2013

President Mohammad Sanaullah FCS

Senior Vice President Md. Shahid Farooqui FCS

Immediate Past President & Councilor Past President & Councillor Mohammad Asad Ullah FCS A. K. A. Muqtadir FCS

Councilor Safiar Rahman FCS

Councilor Md. Shawkat Ali Waresi Joint Secretary, GoB

Vice President M. Naseemul Hye

FCS

Past President & Councilor Itrat Husain FCS

Councilor Md. Selim Reza FCS

FCS

Councilor N.G. Chakraborty FCS

Councillor Md. Akter Hossain Sannamat FCS

Councilor Moinul Islam

Councilor Nasreen Begum

Councilor Muhammad Yasin Ali

Joint Secretary, GoB

Member, SEC

Secretary of the Council

THE CHARTERED SECRETARY J A N U A R Y- M A R C H 2 0 11

Treasurer Md. Monirul Alam

Dr. A. K. M. Delwar Hossain

Councilor Md Abdus Salam FCS

Councilor Gopal Chandra Debnath FCS

Councilor Ahmedur Rahim Registrar, RJSC, GoB

EDITORIAL Institute News

INVESTING IN SHARES This is the first issue of the journal in the New Year. As usual articles on important and relevant issues have been included in this issue as well. Our editorial deals with some aspects of the crisis in the stock market. Recently the share market in the country has suffered tremendously due to the abrupt fall in the value of all the shares and therefore the index nose dived. This was an unprecedented phenomenon which has left a large number of investors, both individuals and institutions, high and dry counting their losses. A lot has been said and written about the recent crash and there is no point in going through the details all over again. Instead I will briefly touch on some points which should be borne in mind when considering investment in shares of companies. The investment is commonly referred to as “share business”. If that be the case then one should approach the matter professionally. An “investment appraisal” should be done taking into account the costs and benefits; risks and returns and other factors such as the various ratios. One should not go for “quick gains” all the time. Investments can be a risky affair; but the risks can be minimized through due diligence and knowledge. Initially one should follow a thorough process for selection of shares and consider “WHICH COMPANY”, “WHY” and “WHEN”. One must examine various aspects of the company selected. The Balance Sheet should be analysed and the fundamentals, dividend policy, investment risks etc. should be checked carefully. The ratios which need close examination are EPS, Working Capital, Debt/Equity, ROCE, Profitability, P/E, Loan position, Assets, Growth trend, etc. The category of the company should be considered and “Z” category shares should be avoided unless the value is near about the face value. It is also important to have a clear knowledge

about the composition of the Board of Directors who are responsible solely for the affairs of the company as well as corporate governance matters. As I said we will be investing i.e. parting with our funds for a future gain. So we must be sure that our investments will give us a reasonable return. It is foolish to invest on advice of others or by following speculations. Greed should not be the guiding factor in the decision making process! It is unfortunate that we do not learn from past mistakes. People made mistakes in 1996 and repeated them again in 2010-2011. Let us not make the same “costly” mistakes again in the future so that the speculators do not get a chance to take us for a ride again. The stock market regulators should have played a more proactive role in the latest crisis. We hope there will be enough reforms to ensure the healthy growth of the capital market which will bring back the confidence of the investors. “Unusual Growth” in the value of shares and the index should be checked out and could be a warning to the prospective investors. We hope that the prevailing situation will soon change for the better so that the “normal activities” of the stock exchanges can commence in full swing. The foreign investors are also watching the situation closely and it should be ensured that no negative signals are given to them. We are optimistic about the future. Let us all work unitedly to create a healthy financial market, including the stock exchanges wherein ethical practice shall take place. May Almighty Allah give us the wisdom to judge better and act rationally.

Itrat Husain FCMA, FCS Editor

THE CHARTERED SECRETARY J A N U A R Y- M A R C H 2 0 11

FROM THE PRESIDENT Dear Professional Colleagues, At the very outset I wish you a very happy and prosperous Bangla New Year 1418. Immediately after taking over the responsibly as the President, steps were initiated to form the standing committee and various other committees. But without an approved “Chartered Secretaries Regulations” no committee could be formed to work as an active committee. A “Regulation Committee” which was formed consisting of expert members of the Institute has drafted the “Chartered Secretaries Regulations 2011”. The Council Members also gave their comments and recommendations on the draft which were incorporated in the final draft. After approval by the council, the “CS Regulation” has been submitted to the Govt. and is now in the process of approval and publication in the official gazette by the concerned ministry. 27th batch admission-winter session January, 2011 A record number of students were enrolled in this session - 83% increase from 25th batch and 23% more than 26th batch. In this 27th batch some fresh graduates also enrolled which gives an impression that now there is more awareness and interest in the profession of Chartered Secretary. Unfortunately it is becoming difficult to accommodate the increasing number of students. To overcome the problem the Institute has established 4 new sections, including day-shift session for the first time. The evening-shift is running as usual. The orientation of the newcomers took place on January 31, 2010 at the BIAM Auditorium. Website of the Institute In these modern days the website plays a vital role in communications. It also acts as brand ambassador and a platform to showcase the activities and achievements of an organization. The website also provides value added services to various stakeholders. Efforts are being made to make the Institute’s website more user friendly with continuous updating and new services. Your positive suggestions will help to enrich it and make it more effective. Visit of Commerce Minister to ICSB The Hon’ble Minister for Commerce Muhammad Faruk Khan MP visited the Institute on February 3, 2011 and launched the official website of ICSB (www.icsb.edu.bd). Various issues concerning the profession of Chartered Secretaries of Bangladesh as well as development activities undertaken by the Institute were discussed with the Hon’ble Minister. Former Commerce Secretaries Suhel Ahmed Choudhury and Feroz Ahmed and Office Bearers, Council Members and some Fellow & Associate Members of the Institute were also present. On behalf of the Council Members, I raised some demands for the development of the institute, such as: • Land for permanent Campus of the Institute • Adequate Revenue and Capital Budget Allocation • Legal footing in the Companies Act and allied acts to develop the profession

• Arranging Financial Assistance from the donor agencies for Research and Development Thereafter the Hon’ble Minister launched the official website of the Institute and expressed his full satisfaction on the design of the website and made some suggestions for the development of the Institute. Membership I am delighted to inform you that during the first quarter 13 qualified secretaries have been granted membership as Associates and 8 Associate Members were elevated to Fellow Members. Congratulations to all the new members. I wish you a glorious career and expect that you will contribute towards the development of the Institute. CPD Program We intend to arrange as many CPD programmes as possible to keep you informed about the recent developments in the relevant fields which would help you to meet the challenges that you continually face, with the highest professional expertise. With this view in mind the Council has approved the following CPD programmes for 2011: • Making Companies Act 1994 compatible to the present need • Application of Shares Buy Back System • Corporate Governance and Compliance Management • All Round Leadership • Company Secretary in Practice Current Matters The government has initiated steps to review and bring about amendments to • Companies Act 1994 • Trade organizations Ordinance 1961 • Societies Registration Act 1860 • Trade organizations Rules 1994 and to frame a new law on • Multi-level Marketing Laws You will be pleased to know that ICSB is also participating as a member of all the respective Committees of the concerned Ministry. I request all members to give their comments and suggestions on the related issues. The government has also decided to reshuffle the SEC Act. I have placed an appeal to include ICSB in the advisory committee. In conclusion, I would like to invite you all to contribute to the Institute. Let us build a world class Professional Institute of the Country. May ALLAH bless us in our endeavours.

Mohammad Sanaullah FCS President

THE CHARTERED SECRETARY J A N U A R Y- M A R C H 2 0 11

Institute News

Institute Activities January - March 2011 The 1st quarter was quite eventful which included both internal and external meetings, training programmes, etc. These were as follows:

Meetings- Internal

External Visit of Minister for Commerce & Launching of ICSB Website

Council Meetings During the 1st quarter of 2011, the council met twice on February 15, 2011 and March 20, 2011 respectively. Mohammad Sanaullah FCS, President of the Institute chaired the meetings. Number of decisions were taken at the meetings which included the following: 1. 2. 3. 4.

Consideration of the draft Accounts for the period of (January 1, 2010 to June 15 , 2010). Fixation of the date of Institute’s Winter 2011 Examination. Approval of draft ‘Service Rules‘ of the Institute. Approval of draft ‘C.S. Regulations - 2011’.

CS Regulations Committee Meeting The meetings of the Chartered Secretaries Regulations Committee headed by Mohammad Asad Ullah FCS were held on January 25, 2011 and February 2, 2011 with a view to framing a draft C.S. Regulations 2011 in line with the Chartered Secretaries Act 2010. The Committee approved the draft C.S. Regulations for submission to Ministry of Commerce after review and approval in principle by the Council.

Muhammad Faruk Khan MP, Hon’ble Minister for Commerce launching the official website of ICSB One of the most exciting events in the history of ICSB, was the first ever visit of the Hon’ble Minister for Commerce, Muhammad Faruk Khan MP on February 3, 2011, to the Institute. Another memorable event was the launching of the ICSB website by the Hon’ble Minister. Equally exciting for ICSB was to enter Internet with online facilities and its own web page server with full network support for access to global information. The world is becoming more global day by day. In the context of globalization the Institute of Chartered Secretaries of Bangladesh is also eager to be a part of the world-wide networking.

Faculty Members’ Meeting A meeting with the Institute’s faculty members was held on March 3, 2011 at the Institute’s office presided over by the President of the Institute. Faculty members exchanged thoughts and views with the aim to ensure quality teaching and urged the students to take the course seriously. The faculty members expressed their commitment to monitor the progress of the students so that they can perform better in the examinations. It was the first meeting of its kind. The meeting was followed by a dinner.

THE CHARTERED SECRETARY J A N U A R Y- M A R C H 2 0 11

Mohammad Sanaullah FCS, explaining the activities of the Institute

Institute News

The President of the Institute, Mohammad Sanaullah FCS, discussed at length the issues concerning the profession of Chartered Secretary in Bangladesh as well as various development activities undertaken by the Institute. The function was attended by former Commerce Secretaries Suhel Ahmed Chowdhury and Feroz Ahmed, immediate Past President & Council Member Mohammad Asad Ullah FCS, Md. Shahid Farooqui FCS, Senior Vice President, M. Naseemul Hye FCS, Vice President, Md. Monirul Alam FCS, Treasurer of ICSB along with a large number of Fellow & Associate members of the Institute. The members requested the Minister for extending support to the Institute in its efforts towards the establishment of good corporate governance in Bangladesh. Regarding training programmes and workshops, the President mentioned that the training wing of the Institute is charged with the task of fostering close links and a meaningful relationship between the Institute and Industry, Trade and Commerce. During the year 2010, it offered an up-to-date business and professional education for entrepreneurs and business executives after identifying their changing needs designed to meet the growing needs of business organizations and industries such as Banks, Insurance companies, etc. The Last year witnessed substantial increase in student enrollment and efforts were made to improve and upgrade the quality of teaching. The students were inter-alia taught how to direct and manage complete business operations at corporate levels and handle the complex and dynamic problems of the corporate world globally as well as locally.

He emphasized on the importance of ICT for Digital Bangladesh to achieve the goal of vision 2021. He also exchanged views with the members of the Council, including the President. A multimedia presentation was made before launching the official website of ICSB. The overview of the presentation covered at length the issues concerning the profession of Chartered Secretaries in Bangladesh as well as various development activities undertaken by the Institute. The Hon'ble Minister was impressed by the presentation as well as the design of the web page of ICSB. The Hon'ble Minister visited the Office, Library, Class Rooms, Training Room and other facilities of the Institute. He assured his support to the Institute and the profession, in all respects.

Muhammad Faruk Khan MP, Hon’ble Minister for Commerce receiving crest from the President of the Institute At the end of the programme, the Hon'ble Minister was presented with the ICSB crest by the President of the Institute. Meeting with Hon’ble Commerce Minister

Due to the remarkable increase in the student enrollment it has become necessary to upgrade the infrastructure facilities. Measures already have taken in hand should promote the objective of making the institute a centre for excellence. Speaking at the inauguration ceremony, the Minister stressed the importance of communication in the context of globalization. He said that countries have been integrated into the global economy. He expressed hope that the website of ICSB will maintain quality of information, promote access to information and open up new information horizons which would provide a range of services to the stake holders.

Office Bearers meet the Hon’ble Commerce Minister Muhammad Faruk Khan MP, at his office

THE CHARTERED SECRETARY J A N U A R Y- M A R C H 2 0 11

Institute News

A team of six members including newly elected Office Bearers of the Institute comprising Mohammad Sanaullah FCS, President of ICSB, Mohammad Asad Ullah FCS, Immediate Past President and Councilor, Md. Shahid Farooqui FCS, Sr. Vice President,M.Naseemul Hye FCS, Vice President, Mr. Monirul Alam FCS, Treasurer and Dr. A K M Delwar Hossain, Secretary of the Institute called on Hon’ble Commerce Minister Muhammad Faruk Khan MP at his office at the Secretariat on January 10, 2011. Gratitude was expressed by the team members to the Hon’ble Minister for being a patron and the Honorary Fellow Member of the Institute. The Hon’ble Minister assured that all possible co-operation to the Institute would be given. He was all praise for the ICSB for its efforts to establish good corporate governance in Bangladesh.

and workshops. The programmes have enhanced their knowledge, skills and ability to effectively face the varied corporate issues that they have to confront. •

Meeting with Barrister Moudud Ahmed

Management of Initial Public Offering: The Institute organized the first training course on ‘Management of Initial Public Offering’ from January 30, 2011 to February 3, 2011 at the training room of the Institute. The course was designed and coordinated by Mohammad Sanaullah FCS, President of the Institute.

The President is inaugurating the Training Programme 19 participants mostly mid level executives of different companies successfully completed the course. Eminent faculty, including professional executives with vast exposure on the practical requirements of the topics, addressed the sessions and interacted with the participants.

Barrister Moudud Ahmed MP receiving a flower bouquet from the President of the Institute

•

A three-number delegation headed by Mohammad Sanaullah, FCS President of the Institute called on the Hon’ble MP and Ex. Minister for Law and Parliamentary Affairs Barrister Moudud Ahmed at his chamber on March 5, 2011. The Institute conferred him the Honorary Fellow Membership for his outstanding contributions towards the enactment of the Chartered Secretaries Act 2010. He complemented the Institute and its Members for taking initiatives to establish corporate governance in Bangladesh.

Standardization of Annual Report: In view of keen interests shown by the corporate candidates, the Institute arranged the said programme from March 5, 2011 to March 8, 2011 held at the training room of the Institute. 16 professionals from different professions participated in the programme. The course was also designed and coordinated by Mohammad Sanaullah FCS, President of the Institute.

Training Programmes During the first quarter of the year the Institute organized and executed series of management development programmes in the form of professional training courses and workshops for senior and mid level executives of various organizations. This has created positive impact in the corporate circle, where individual participants have immensely benefitted from the trainings

THE CHARTERED SECRETARY J A N U A R Y- M A R C H 2 0 11

Course co-ordinator is seen with the participants •

Internal Audit and Control Environment: A four-day-long training course on ‘Internal Audit and Control Environment’ was organized by the Institute from March 12, 2011 to March 15, 2011 at the training room of the Institute. 24 participants from different corporate bodies attended the training course.

Institute News

Result of Summer 2010 Session Examination The Council of the Institute declared the following results of the Chartered Secretary Summer 2010 Session Examination held from January 21, 2011 to January 28, 2011. Course co-ordinator with the trainees The training programmes were designed and coordinated by Mohammad Sanaullah FCS, President of the Institute. At the concluding sessions the President congratulated the participants for attending the training sessions and called upon them to take part in the professional training programmes more and more to enhance their professional skills and to secure dignified and pivotal positions in their respective organizations. Orientation Program for Winter Session â&#x20AC;&#x201C; 2011

A Council Meeting in progress A total of 233 candidates took part in different levels/groups. The Examination was held under direct supervision of the Examination Committee of the Council. The Council at its meeting held on March 20, 2011, based on the recommendations of the Examination Committee, declared the result of the Summer 2010 Examination. The results are as follows: C.S. Inter. Level-I : Roll No. :

Mohammad Sanaullah FCS, President of the Institute delivering his speech at the Orientation Programme The Orientation Program for the newly enrolled students of winter 2011 Session (27th batch) of Chartered Secretary Course was held on January 31, 2011 at BIAM auditorium, Dhaka. The President of the Institute inaugurated the Programme and welcomed the newly enrolled students and encouraged the students for taking admission to the Chartered Secretary Course. 196 students mostly from different professions got admission in the two-and-half-year course during the winter session (January-June, 2011). Among others Md. Shahid Farooqui FCS, Senior Vice President, M. Naseemul Hye FCS, Vice President and Md. Monirul Alam FCS, Treasurer of the Institute spoke on the occasion. They mentioned about the mission and vision of the Institute and also advised the students to pursue their studies seriously and follow the code of conduct of the Institute to build up their career as a Chartered Secretary. The President also delivered a power-point presentation on the challenges and opportunities of the profession for creating efficient management in the corporate sector.

005, 008, 010, 011, 013, 014, 017, 018, 019, 020, 027, 029, 031, 035, 036, 038, 040, 047, 049, 050, 051, 052, 055, 056, 058, 060, 061, 063, 064, 065, 068, 069, 070, 071, 075, 077, 079, 082, 083, 084, 085, 087, 088, 089, 090, 092, 093, 094, 095, 096, 097, 098, 099, 100, 101, 102, 103, 104, 105, 108, 110, 111, 112, 114, 116 and 117 Total â&#x20AC;&#x201C; 66 (Sixty Six) Only C.S. Inter. Level - II: Roll No.: 122, 123, 125, 126, 130, 131, 133, 134, 140, 146, 149, 151, 153, 155, 156, 159, 160 and 164 Total - 18 (Eighteen) Only C.S. Inter. Qualified: Roll No.: 165, 166, 167, 168, 170, 173, 175, 177, 178, 179, 181, 182, 183, 184, 185, 187, 189, 190 and 191 Total - 19 (Nineteen) Only C.S. Final Group I: Roll No.: F-03, F-04, F-06, F-09, F-10, F-11, F-12, F-14, F-15, F-17, F-18, F-19, F-20, F-21, F-22, F-23, F-24, F-26, F-27 and F-28 Total - 20 (Twenty) Only

THE CHARTERED SECRETARY J A N U A R Y- M A R C H 2 0 11

Institute News

C.S. Final Qualified: Roll No. & Name: Roll No. Name of the Students F-30 Mohammad Hasan Imam F-31 Prantush Chandra Shaha F-35 Md. Abu Sukkur F-36 Mohammad Hafizour Rahman F-37 Darul Awam Tuhin F-38 Hossain Ahmed Bhuiyan F-40 Amit Kumar Roy F-41 Masudur Rahman Bhuiyan F-42 Md. Abu Sayeem Total â&#x20AC;&#x201C; 09 (Nine) Only Elected Associates Members

A-0235

Jasmin Akter

Assistant Company Secretary Destiny Group

A-0236

A. S. M. Sayem

Assistant Company Secretary M. I. Cement Bangladesh Limited

A-0237

Golam Mohammad Regwanul Hoque Articled Student ACNABIN

A-0229 Mir Abdul Al Mamun Chowdhury Director Operations Mega Yarn Dying Mills Ltd.

A-0238

Md. Shafiqur Rahman Assistant Company Secretary Destiny Group

A-0230 Md. Nanu Bhuiyan

Personal Officer Securities & Exchange Commission

A-0239 A-0231

Md. Humayun Kabir

First Assistant Vice President Social Islami Bank Limited

Arojit Saha

Company Secretary Anlima Yarn Dyeing Ltd.

A-0240

Shikha Rani Datta A-0232

Manager, Administration & Board Affairs Northern General Insurance Co. Ltd.

Md. Sayem

Assistant Accountant Ministry of Information

A-0241

Md. Mokammel Hoque A-0233

Sr. Executive Grameenphone Ltd.

Nazmun Nahar

Senior Manager Fareast Finance & Investment Limited

A-0234

F-0106

Mohammad Nazrul Islam

Mashihur Rahman

FAVP & Manager SIBL

List of Fellow Members

THE CHARTERED SECRETARY J A N U A R Y- M A R C H 2 0 11

Director, Finance & Co. Secretary Atlas Green Pac Ltd.

Institute News

F-0107

Success Greeting

A. K. M. Abu Ashraf

Financial Controller & Co.Secretary SM Group

F-0108

Kazi Atiqur Rahman

DGM (Company Affairs & Secretariat Division) Bashundhara Group

F-0063

Md. Azizur Rahman FCS

has recently been promoted to the position of Company Secretary of British American Tobacco Bangladesh. Prior to the assignment, Rahman was the Deputy Company Secretary & Records Manager in the same Company. He is also a faculty member and fellow of the Institute of Chartered Secretaries of Bangladesh.

A-0194 Zahangir Alam Manik ACS, MBA

F-0109

Mohammad Obaydur Rahman AVP (Board Secretariat) EBL

F-0110

Ahmad Munir Hossain

Regulatory Affairs Manager BATBC

F-0111

Abdulla-Al-Mahmud

Managing Partner Haque Shah Alam Mansur & Co.

has recently been promoted to the post of Deputy Managing Director (DMD) & Company Secretary of Meghna Insurance Company Ltd. Earlier Manik was the Sr. DGM & Company Secretary in the same Company. He started his service career with Canadian High Commission Recreation Centre (A wing of Canadian High Commission of Bangladesh).

CS-1237 Mohammad Mostafizur Rahman

has been appointed as Company Secretary of Heidelberg Cement Bangladesh Ltd. on February 24, 2011. Prior to that, Rahman served as Legal Affairs Manager in the Finance & Administration department of Bata Shoe Co. (Bangladesh) Ltd.

EXTENSION OF SERVICE CONTRACT OF THE INSTITUTE SECRETARY The service contract of Dr. A K M Delwar Hossain, Secretary of the Institute has been extended for another year upto December 31, 2011.

F-0112

Mohammad Sayduzzaman

SVP Phoenix Finance & Investment Ltd.

F-0113

Mohammad Bul Hassan

Chief Financial Officer Siemens Bangladesh Ltd.

F-0114

Gopal Chandra Debnath Company Secretary Apex Tannery Ltd.

NEW APPOINTMENT Mohammad Ariful Islam joined as Assistant Director of the Institute on March 7, 2011. Previously, Islam worked as Assistant Accountant and Manager in True Dynamics Ltd. (a leading Accountancy Consultancy firm) in London. He also worked as Area Manager and Budget Consultant for Silverster Trading UK Ltd. â&#x20AC;&#x201C; Subway Wings. Md. Tariqul Haque joined as Co-ordination Officer of the Institute on March 1, 2011. Prior to this appointment, Haque was the Personal Secretary to Chairman at Dr. Maqsudur Rahman Trust in Gulshan, Dhaka. He also worked as Principal in BIAM Laboratory School at jaintapur,Sylhet.

THE CHARTERED SECRETARY J A N U A R Y- M A R C H 2 0 11

Institute News

Annual Picnic of ICSB-2011 - Md. Ruhan Mia ACS Picnic is a gathering of friends and acquaintances, both old and new. People from diverse backgrounds come to exchange ideas and insights in an informal and social atmosphere. Every year the Institute organizes a picnic for the members, their family and employees, which creates a professional interaction and understanding among everyone from different surroundings. ICSB organized its Annual Picnic on January 14, 2011 at ORCHID of National Park at Gazipur.

with great interest. After resting for a while a delicious lunch was served. In the afternoon, when everybody was in a relaxing mood,the raffle draw and prize giving ceremony was held. Md. Monirul Alam FCS with his natural humor made the whole programme very enjoyable. The President along with other Senior Members distributed prizes among the winners. Lucky member of the year was Md. Munirul Hoque ACS, Company Secretary of Diganta Media Corporation Ltd. When Feroz Ahmed the Hon'ble guest was requested to express his reaction regarding the picnic, he remarked “it is a great opportunity for everyone to know their near and dear ones, away from the office environment and that gives an enormous gratification to all. I am very happy to participate in this picnic and it will be a memorable day of my life”. He mentioned that he along with his family members, were honoured for the invitation of the picnic.

A Group of participants at the Picnic The two hour journey started at 8 O’Clock in the morning by bus from the Institute campus with cheers and whistles of the delighted ICSB families who were looking forward to enjoying a day with other members and families. The participants enjoyed the journey and when they reached the destination they became excited though they were a bit hungry; but the delicious breakfast satisfied their stomach. Different types of seasonal cakes were served for breakfast. Feroz Ahmed, former Secretary of Ministry of Commerce along with his family members participated as special guests. Mohammad Sanaullah FCS President of the Institute welcomed everyone and thanked them for their participation. Other Office bearers Md. Shahid Faooqui FCS, Senior Vice President, M. Naseemul Hye FCS, Vice President and Md. Monirul FCS, Treasurer of the Institute also thanked the participants who made the event successful. Different games were arranged for the children and the members who took part in the events

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Children waiting eagerly for an event The President thanked the Picnic Committee organizers for such a wonderful event. Md. Monirul Alam FCS thanked the participants and sponsors who contributed a lot for making the event a grand success which was also made possible by the enthusiasm, hard work and collaboration of a group of amazing people, including the Council Members, Honorary Fellow Members, Fellow Members and Associate Members of the Institute. It is a matter of realization – what we learned, who we met and what ideas inspired us the most.

Institute News

Newspaper Clippings

Friday, 4 February 2011

THE CHARTERED SECRETARY J A N U A R Y- M A R C H 2 0 11

Institute News

For further information Please Contract : Institute of Chartered Secretaries of Bangladesh (ICSMB) 107 Kakrail (Ground &1st Floor), Dhaka-1000. Phone : 880-2-934 9578, 933 6901, FAX : 880-2-933 9957 E-mail : secretary@icsb.edu.bd, icsb@icsb.edu.bd, Website : www.icsb.edu.bd

A D M I S S I O N N O T I C E

Institute of Chartered Secretaries of Bangladesh (ICSB) Statutory body under an Act of Parliament

Institute of Chartered Secretaries of Bangladesh (ICSB) is an independent professional and examining body to develop, promote and regulate the profession of Chartered Secretaries and to impart education and training for professional competence in Corporate Governance and Company Secretary. Chartered Secretary is a challenging and rewarding profession in the field of corporate management of both private and publicly listed companies. Candidates willing to pursue the challenging career as Company Secretary or Corporate Manager are invited to take admission at the Intermediate Level of Chartered Secretaryship for 2011 Summer Session (July-December) Eligibility: Graduates with Six points. Recent graduates and A Level qualifiers may also apply. Admission Open till June 30, 2011 Coaching classes will start from July 23, 2011 at Institute Premises. Class Timing from 6.30 p.m to 9:30 p.m four days a week. For further information Please Contract : Institute of Chartered Secretaries of Bangladesh (ICSB) 107 Kakrail (1st Floor), Dhaka-1000, Bangladesh Phone : 880 2 934 9578, 933 6901, FAX : 880 2 933 9957 E-mail : secretary@icsb.edu.bd, icsb@icsb.edu.bd, Website : www.icsb.edu.bd

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Buy-Back of Shares - M. Naseemul Hye FCS Buy-back is a mechanism of taking back shares from existing share holders by the company itself i.e., own share repurchase. It is a corporate financial strategy that involves capital restructuring which is prevalent globally. A company may buy-back the shares either to increase the value of shares or to eliminate any threat by hostile investor(s) who may be looking for a controlling stake into the company. A share buy-back tends to influence positively on earnings per share, returns to the stakeholders and realigning the capital structure and to check hostile takeovers. In fact it is a strategy to maintain share price in a bearish market through buying from open market at a premium over the prevailing market price. Bangladesh scenario There is no room for buy-back of shares by a company itself in Bangladesh under the Companies Act, 1994. Recently a proposal has been made by the Securities & Exchange Commission to the Ministry of Commerce to allow listed companies to buy-back its shares through amendment of the Companies Act, 1994 that has been prohibited by the Act till now. It has to be done by inserting specific provisions of buy-back of own shares by the companies. In our country in case of a listed company investors can subscribe shares through an IPO or buy from secondary market. But selling of shares has to be made through stock exchanges if the securities are traded in stock exchanges and it has demanded as well. But, if there is no buyer from the shares or if they are not traded in the stock exchanges or placed in over-the-counter (OTC) or the shares are delisted then selling of such shares are very difficult for the investor(s). So, where can the investors go apart from the concerned company?

Due to the absence of such provisions in the existing laws of the country,the company itself cannot do so as the buy-back is a case of capital reduction and it is not allowed in our country at present. Section-58 of the Companies Act, 1994 has put restrictions on the companies to purchase its own shares although the next section, i.e., Section-59, has provided scope of reduction of share capital only through the Court's sanction under some strict conditionalities and with having specific provisions of the Articles of Association of the company itself. Indian scenario The Companies Act. 1956 of India did not have any provision of buy-back of shares by the company itself until the mid nineties of the last century. It took more than 40 years to include such a provision in the Indian Companies Act. In India, while buy-back of shares by the company itself is not permitted as a treasury option under which the shares may be reissued later on; but it is permitted to buy-back own shares to reduce the numbers of shares issued and return surplus cash to shareholders of the concerned company. In 1997 the concept of buy-back of shares was proposed through a bill. The provisions of buy-back of shares by the company itself contained in the Companies (Amendment) Ordinance, 1998 promulgated on 31.10.1998. Subsequent to the Companies (Amendment) Ordinance, 1998 the concept of buy-back was introduced in the Indian Companies Act, 1956 through insertions of some new sections i.e. Sec-77A, 77AA and 77B to this effect. Consequent upon the promulgation of the Companies (Amendment) Ordinance, 1998 the Securities & Exchange Board of India (SEBI) issued the SEBI (Buy-Back of shares) Regulations, 1998 applicable for the listed companies. The buy-back of shares for other

THE CHARTERED SECRETARY J A N U A R Y- M A R C H 2 0 11

companies i.e. private limited and unlisted public limited companies are governed by the Private Limited Company & Unlisted Public Limited Company (Buy-Back of shares) Rules, 1999 as issued by the Department of Company Affairs of India. Objectives of Buy-back Buy-back is a process whereby a company purchases its own shares or other specified shares from the holders thereof for any of the following purposesi. To provide an additional exit route to shareholders when shares are under valued in the secondary market or thinly traded; ii. To support share price during periods of sluggish market conditions; iii. To return surplus cash to shareholders which is not required in business operation of the company; iv. To improve earnings per share; v. To rationalise the capital structure by writing off capital not represented by adequate assets; vi. To improve return on capital, return on net worth and to enhance the long term shareholder value; vii. To thwart unwanted takeover bids; viii. To enhance consolidation of stake in the company; ix. To provide service to the equity more efficiently. The decisions to buy-back is also influenced by various other factors relating to the company, such as growth opportunities, capital structure, sourcing of funds, cost of capital, optimum allocation of funds generated and so on. Quantum of Buy-back Under the Indian laws the buy-back can be authorised by the Board of Directors of the Company as well as by the Shareholders. There are some differences in the quantum with respect to such authorisations. The Board of Directors of the company who intend to buy-back shares can authorise it not exceeding 10% of the total amount of paid-up equity capital and free reserves of the company

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in that financial year. Such resolution should be passed at a meeting of the Board, i.e. not through a resolution by circulation or not at a meeting of a Committee of the Board. However, the methodology, mode of buy-back and other procedural requirements for the buy-back may be delegated by the Board to a Committee. By passing a special resolution, the Shareholders can also authorise the buy-back of shares. The quantum of such buy-back should not be exceeding 25% of the total amount of paid-up capital and free reserves of the company in that financial year. The Paid-up capital includes both equity and preference share capital. The notice containing the special resolution proposed to be passed should be accompanied by an explanatory statement stating â&#x20AC;&#x201C; i. ii. iii. iv. v.

all material facts, fully and completely disclosed; the necessity for buy-back of shares; the class of share intended to be purchased under the buy-back; the amount to be invested under buy-back; and the time limit for completion of buy-back of shares.

In India buy-back of equity shares in any financial year could not exceed 25% of the total paid-up equity capital of the company. However a company may buy-back its entire shares i.e., 100% shares other than equity shares e.g. preference shares and any other shares as the case may be subject to overall limit of 25% of the total paid-up capital and free reserves of the company. The free reserves for the purpose of buy-back of equity shares include general, dividend equalization, foreign currency fluctuation, shares premium, investment fluctuation reserves. Declaration of Solvency In India, a company if desires to buy-back after passing of the resolution of buy-back the Board of Directors has to declare that it is solvent

financially and the declaration has to be submitted to the Registrar as well as the Securities & Exchange Board of India before the buy-back. The declaration of solvency should be supported by an affidavit of the Board of Directors that it has made full inquiry into the solvency as a result of which they have formed an opinion that it is capable of meeting its liabilities and will not be rendered insolvent within a period of one year of buy-back. The declaration of solvency to be signed by at least two directors including Managing Director of the company. Restrictions on Buy-back 1. Provision of buy-back in the laws shall not allow a company to use it as a tool for manipulations. A company shall not be allowed to buy-back its shares if it defaults in i. Repayment of any loan in full or in part; ii. Payment of interest on loan; iii. Repayment of deposits; iv. Redemption of debentures; and v. Redemption of Preference shares. 2. A company shall not be allowed to buy-back if it has defaulted â&#x20AC;&#x201C; i.

In preparation and filing of Annual Returns to the authorities. However, it may buyback if such default is rectified; ii. In payment of dividend to the shareholders; iii. In preparation of annual accounts and audit thereon. If the statutory auditors of the company expressed the qualified opinion that the accounts of the company were not prepared in accordance with the accounting standards adopted in the country then it can not proceed to buy-back its shares. 3. Buy-back shall not be made by a companyi.

through any of its subsidiary or holding company; ii. through any investment company or group of investment companies. 4. A company shall not be allowed to buy-back if it has no financial solvency.

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Conditions of Buy-back The buy-back shares by a company itself must be provided under the provisions of the laws of the country. Moreover it should also to be authorised by the Articles of Association of the concerned company. In the case the Articles of Association of a company do not contain such a provision, then those should be amended appropriately authorising the buy-back of shares. Such an amendment should be made either at a meeting preceding the meeting wherein the resolution for buy-back is to be passed or at the same meeting wherein the resolution for buy-back is to be passed but the resolution for amendment of Articles of Association should precede the resolution for buy-back of shares. Procedures to be followed for buy-back i.

Where a company intends to buy-back its own shares has to make a public notification containing adequate disclosures under the provisions of buy-back;

ii. The intending company to convene a general meeting as to pass the special resolution concerning buy-back; iii. After passing of special resolution, the company has to make public announcement through at least two national dailies - one in English and one in Bangla; iv. A copy of the special resolution authorising buy-back to be filed with the authorities including the RJSC, SEC and stock exchanges; v. A draft offer letter to be filed with the SEC. The letter of offer of buy-back then to be dispatched to the members of the company; vi. The company opting for buy-back has to open a bank account for the exclusive purpose of buy-back; vii. The public announcements to mention specific Record Date or Book Closure period for the purpose of determining the names of shareholders to whom the letters THE CHARTERED SECRETARY J A N U A R Y- M A R C H 2 0 11

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of offers to be sent by the company; viii. The date of opening of the buy-back offer may not be earlier than ten days or later than thirty days after the Record Date or Book Closure period; and ix. The buy-back offer may remain open for a period of not less than fifteen days and not more than thirty days. Return of Buy-back After completion of buy-back, within a particular period (e.g. 30 days or likewise) the concerned company has to file the Returns to the Registrar of Joint Stock Companies & Firms and the Securities & Exchange Commission containing prescribed particulars relating to buy-back. However, a private company and an unlisted public company if do so, may file return of buy-back with the Registrar only. Penalty for non-compliance There should have penal provisions in default of complying with the requirements as to the buy-back. In such case the company and also every officer of the company who knowingly

be a party to such default shall be held liable of both pecuniary and imprisonment. The Companies Act, 1956 of India has also provided penal provisions for non compliance in respect of buy-back. Under Section- 621A of the Companies Act, 1956 the fine is up to fifty thousand rupees, or imprisonment up to two years or with both. Conclusion The intrinsic aim of buy-back is to protect the interest of the shareholders of the company. But it is to be true only when the management of the opting company is considered as efficient and working in the interest of the stakeholders. Otherwise it may be used as a tool for manipulation. In many countries the option of buy-back of securities is used as a useful means to exit from the market and even from the country as well. So, the regulators shall have proper and adequate monitoring over the buy-back system and financial market as well failing which this option may be used as a tool for further exploitation of the mass investors of the country.

Training Calendar (April –June, 2011) Sl. No. 01 02 03 04 05 06 07 08 09

Name of the Programme

DuraƟon

Month

Management of Company Mee ngs

Day- long Program

April 2011

Internal Audit and Control Environment (2nd Batch) Compliance Management for Banking & NonBanking Financial Ins tu ons Eﬀec ve Audit Commi ees Director & their Du es Management of Provident Fund, Gratuity Workers’ Profit Par cipa on Fund How to Inves gate Fraud Handling of Labour Management Tax Management

4- Day- long Program Week-long Program

April 2011 May 2011

3-Day-long Day- long Program 3- Day-long Program

May 2011 May 2011 June 2011

Day- long Program 3-Day-long Program Week-long Program

June 2011 June 2011 June 2011

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Stock Market

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Stock market detour - A. K. A. Muqtadir FCS No right things can be done in a wrong way. Or, in other words - wrong ways won't yield the right results. The prevailing capital market scenario of Bangladesh perhaps more strongly establishes the said maxims. Flawed policies, detrimental inducements, poor monitoring, unmerited acclaims and lastly the by-default oblivious issuers have all together brought the situation to this sorry pass! It also instituted once again that history does repeat itself with 1996 memories still in mind. What goes wrong in our capital market that almost every day it ends in street cries and fiasco? For answers we have to underscore who actually orchestrates in its process. It would be quite wrong to shrug of by saying merely that well there is the Securities and Exchange Commission (SEC) to monitor the market. It definitely involves other crucial behind-the-scene organs such as the stock exchanges, Bangladesh Bank, commercial banks, merchant banks, insurance companies, brokerage houses, non-government organization (NGOs), media men, socio-political business dons and, above all, the government who happens to be critical in the market operations. When the bubbles erupted, all rejoiced unmeritedly! But as the suds settled, blaming only SEC would definitely and deliberately work to protect the other masterminds involved who let it happen as such. SEC would be questioned, but others involved must be brought to book. Let us take the case of Bangladesh Bank (BB) who controls the commercial banks, money market, and thereby the economy. Quite conspicuously, a big chunk of banks' money in the recent past got the floodgate to capital market. At first, banks were allowed to put money on share business. It is claimed that they had the exposure limits, but that vaunted limit was hardly scrutinised. Banks indeed enjoyed the largesse and latitude of the central bank while basking in the stock market!

And then came the crucial leverage when instead of controlling, BB asked the banks to constitute their securities wings to involve more briskly in the stock market. Watching the unbridled plundering, even the insurance companies soon joined in the loot! It was catastrophic to allow banks and insurance to be involved so enormously in such fickle business. We know banks deal in cash and credit. One of such initiatives was to arrange money and credit for creative purposes of the nation, namely: industrialisation, production, trade and commerce etc. In the process, banks shall indeed make profit, what they are there for. Now, profit and profiteering are certainly not the same, nor alike are their social lookouts. For banks, profit results from ethical business, whereas profiteering is simply exploitation! Banks have exploited the scope and leverage allowed unjustly in their capital market operations, while the Bangladesh Bank was purportedly acquiescent and yielding in its role as the central bank and allowed the catastrophes to happen. Both should face enquiry commission, whatsoever. So far as the stock exchanges are concerned, it has already been mentioned amply by different quarters that our same 'owner-and-operator approach' is what has led to the market debacle now as well as in the past. One of the very old business maxims is delineation of management and ownerships, what is totally not there in our stock market. It is not expected from an owner to practice management ethics as long as he is exposed in the business. At the same time, business will only tend to grind when run by the owner. And the obvious fall-out is on the market. If we want the market to flourish, then we have to have the separation in place. The market players in our bourses are stock exchange members, on the one side. Then the same sets are the brokers, dealers, merchant bankers,

THE CHARTERED SECRETARY J A N U A R Y- M A R C H 2 0 11

Stock Market

operators, often even regulators and what not. Such all-in-one-practice is what is seen in Bangladesh only. As a result market forces often give in to the lusts of those who control them from all ends and bounds. This has to be reformed, if we want the investors' confidence to come back. Also, playing in the market by the policy makers and their agents and goons must be stopped. If we mean business only, then it has to be business like and on a level playing ground. Oblivious issuers! The quiet onlookers of bubbles and bursts in the stock market are the innocent companies who actually issue the shares and securities. No one turns on them! Whereas, it is their securities what are so keenly and ardently traded in the market. What do they get in turn? The capital generated from initial public offerings (IPOs), and that's all! But, the issuers very hardly fetch any real benefit by becoming listed in the stock market. This is what the other considerations are, to ponder about in the game. Why do the prices of shares enlarged in the stock market gallop over the days ? It is often said that the prices of shares depend on the respective company fundamentals. But company fundamentals come out once in a while in the published financial statements of the company, which are presented only periodically and not daily. Whereas, prices change daily depending on demand and supply. The prices change because they float on the flows of market forces governed by the market operators. Now, it is those market operators only who actually cash on the change of prices -- often through speculations, often by manipulations! They cash on the throbbing prices of shares, an item that originates from the issuing companies. But the sorry story for the poor companies is that they are left alone behind the scene, often in the oblivion and far apart from the benefit, although it is they who create the securities. The companies are there, as if, only to register routine transfer of shares! What a paradox indeed! Such inconsistency has also

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to be changed. Time has come for a thorough reversal of the market mannerism. Bangladesh is a unique case and has to be treated in a distinct and discreet way to be a model for the stock market world. Notwithstanding the efforts of the authorities to streamline market mannerism, one point is missing in the whole system. And it is: that the companies i.e. issuers of securities should also be allowed the share of the market benefit, what they deserve so vividly and vibrantly. The concept that - the shares issued and later enlarged and traded in the market are in fact matters of the company - must be given the value it weighs. Companies also need to raise their status from the primary market to the secondary market. Playing intermediaries should share their market paybacks, whatsoever there is, with the respective issuers, since their trading item i.e. the securities indeed originate from them i.e. the companies. This can be instituted by a formula what may be designated as Stock Market (Benefit) Formula acronymed as the SMF. The formula works out on the total volume of trade of shares of respective companies. A levy on the total volume of trade of a company's shares, to be paid to the company, is the guiding factor in this case. This is somewhat like bank's levy on the customers accounts. This call of change in our capital market has to be recognized for the sake of a sustainable growth and development of the market. It is the stock exchange, in this case, that has to play a reciprocating role towards the company. Stock exchanges will find out the total volume of market capitalization of a company based on the respective traded volume, work out the levy on a pre-agreed rate or ratio and pay that to the respective company being the company's market returns. This may be a periodical practice. Once the companies get real benefit from the capital market, more companies would be coming. Let us treat our case in a unique our way.

Black Money

Article

The Black Economy of Bangladesh: Taxing Missed Millions - Md. Shawkat Ali Waresi The words black economy are emotive and pejorative in themselves. Other descriptions for the same set of activities include informal, irregular, underground, hidden, unofficial, dual, unrecorded, untaxed and unmeasured economy. ln different contexts different terms may be more or less appropriate. The term black money is adopted here, not necessarily because it is the most appropriate but rather because it is the term that has the widest currency. Black money indicates the accumulation of income which does not figure in account books. lt is the aggregates of incomes which are taxable but are not reported to the tax authority. As a result black money cannot be used for honest business transactions in the economy. lt is mainly used for illegal transactions giving rise to black market operations. When the magnitude of the operation of the black money results in the establishment of a parallel economy this connotes the functioning of an unsanctioned sector in the economy whose objectives run parallel with the avowed social objectives. Thus the term parallel economy emphasizes a confrontation between the objectives of the legitimate sectors ond the illegitimate sectors. There are three aspects of black moneysimple, compound and administratively its simplest form black money refers only to income which arises from tax evasion. Once the black money is generated it tends to be channeled into saving and investment in gold, bullion and other unlawful activities giving rise to further black money. This is the compound aspect. The administrative aspect refers to a system of cuts, commissions and kickbacks by the administrative personnel which cements the Iink between the first two approaches. Black money is created basically due to the notion that an acceptable net rate of return of an individual is far in excess of the permissible rate of return under the law of the land after taxation. As a result by methods of tax evasion, tax concealment, smuggling in exports and imports, production of illicit commodities, unlicensed commodities and a large variety of

devices of over invoicing and under-invoicing, artificial escalation for the cost of the project white money is converted into black money. The inflows into the black section from the white section and the outflows from the black section into the white section go on simultaneously. lt is widely believed that the inflows into black sectors have been becoming stronger than the outflow. This explains the continuous increase in the size of black money of our economy. ln this paper having examine different aspects of black economy of Bangladesh attempts have been made to suggest measures to entice the black money back to formal economy. Measurement of Black Economy The economy of Bangladesh is like a Zebra. lt is difficult to state whether the black money operations occur in the background of a white money dominated system or the white money operations occur in the background of a black money dominated system. The magnitude of the black sector has grown to such an extent that it has become a powerful force to change the policies of a government. To have an idea about he effects and impacts of underground economy it is essential to have an estimate of black money in Bangladesh. Almost by definition, any area of concern that contain significant illegal element is going to be deficient of reliable statistics. Such is the case with the extent of black economies. The figures quoted for the black economy are varied as the methods used to generate them. A newspaper's report says that the Indian tax-dodgers are cheating the national government of 85 billion dollars of revenue every year. The Pioneer newspaper says the staggering sum accounted for almost 20 percent of India's GDP. The newspaper bases its story on confidential document of Central Bureau of Investigations (CBl).The calculation of the illegal tax evaded funds, also termed black money in India, was based on "several

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Black Money

factors and economic parameters." The newspaper quotes:" lf 50 percent of this income is tapped then government revenue is likely to go up by 2,000 billion rupees (42.5) billion dollars) in a single year." (The Daily Star, 12 November, 2001) Like India, no systematic study has recently been made to estimate the black money in Bangladesh. in 1973-74 the Bangladesh Bureau of Statistics conducted the household expenditure survey which indicated that the number of family having income above the threshold limit was 475 thousand. The Taxation Inquiry Commission (1979) estimated the number of such families at about 500 thousand of which about 200 thousand was on the tax roll and 300 thousand was evading tax. On the basis of the above analysis the Commission Concluded that the amount of revenue lost each year was 80 to 100 crore takas. In the absence of specific measure for estimating black money, we can only state the monetary value of black money transactions which are expressed as a percentage of GDP. With a huge population of about 130 million people hardly 1.3 million pay income tax. Although income tax collection increases more or less at the rate of 10-200/o each year the tax-GDP ratio at around 100/o remains one of the lowest among the developing countries as against 400/o or more for almost all European countries. A World Bank recent report reveals that at present black money amounts to sixty thousand crore takas (Janakantha, 1 3 April, 200 1) Causes of Black Money Several sources of black money are identified as causes. The major problem areas are smuggling, under-invoicing, over-invoicing, contractual cuts and commissions, tender monopolization, graft extortion, rent seeking, ioan defaults so on and so forth. lt would be relevant to discuss some of the factors so that a correct understanding about the origin, growth and expansion of black money can be possible. Smuggling: Smuggling is one of the sources of black money. Due to the rigid system of exchange control gold, jewelry, electronic goods etc. constitute rip-^ ground for smuggling.

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Over-invoicing of import: Goods imported into the country are often over-invoiced by arrangement with the foreign supplier. This enables the importer to remit excess fund to the supplying country. The excess amount of money is either deposited by the importer in some foreign bank or is brought back to the country through unofficial channels with an -additional margin of profit arising due to the difference between the official and unofficial exchange rates. Over-invoicing of imports results in the inflation of purchases. Under-invoicing of Export: Export are also under-invoiced for the same purpose of acquiring foreign exchange outside the country. Under-invoicing of exports causes reduction in the value of sales and the book profit is unduly reduced to the extent of under-invoicing. The difference between the actual income and such reduced book profit escapes tax and swells the black money. Shortage of Goods: Controls are often introduced to check shortages. As controls become rigid or are extended to wider areas, the premium in the black money increases. Controls on scarce goods are necessary for poorer sections of society. Those who administer the controls have enormous scope for corruption. This results in the generation of black money. Licensing: The system of licensing is associated with maldistribution of commodities in short supply which results in the generation of black money. Licensing prohibits new entries from creation of additional supplies. Businessmen who secure licenses can charge a hefty premium in black from helpless common men. Huge payments made to grease the palms for gratification and unlawful favour result in black money. Construction industry: There has been rapid expansion of construction industry. lt is estimated that the rate for getting necessary sanction is above 10 to 15 percent of the estimated cost. Naturally, construction industry has been contributing considerably to black money. Industrial Sector: Industrial sector has been the major contributor black money. Controllers

Black Money

of public limited companies buy low and bill high and pocket the difference personally. Inflation: Prices rise higher than income, people caught between these two forces find it difficult to meet the both ends. When people think that black money can be earned going unpunished they are tempted to resort to it. Election: Political parties need huge amount of money above the ceiling on expenditure officially allowed for election. The parties try to obtain this excess amount from businessmen, industrialists, smugglers and the like. Businessmen have by now learn that they have to pay a certain charge out of the black money to the coffers of the political parties. This in turn induces them to follow malpractices to accumulate black money. Demonstration Effect: Black money provides an opportunity to lead a luxurious life beyond the normal standard. There is a desire to emulate the higher standard of living of the affluent people. This demonstration effect tempts people to earn more money by illegal means. Ineffective Enforcement of Tax Laws: An important reason for the existence of black money is that no serious action is taken against people when black money is detected. Justice is slow and often results in mild punishment. Standard of Public Morality: Deterioration of moral standard of the people is another important cause for the growth of black money. Middlemen between Taxpayers and Revenue Authority: The middlemen who intermediate between tax payers and revenue authority are responsible for tax evasion.

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Shortage of Experienced Personnel: The taxes department should consist of experienced and efficient personnel to cope up with the assessment and investigation work. The factors relating to income, wealth and expenditure are known only to the taxpayer and if he does not disclose all of them to the assessing officer the task of the later determining the correct tax liability becomes very difficult. Tax Evasion & Tax Avoidance A study of black money should consider the distinction between tax evasion and tax avoidance. Tax evasion refers to the illegal act of suppression or understatement of the income. Tax avoidance on the other hand is an arrangement by which the taxpayer reduces his true tax liability by legal methods, The difference between evasion and avoidance is only of degree as in both the cases there is leakage of revenue which increases the burden of tax on other taxpayers who do not resort to such practices. This leads to black money which is utilized secretly in illegal transactions for earning more and more money. This vicious circle of tax evasion breeds into cancerous growth of black money. Here we shall give two examples of tax evasions/avoidance to explain the nature of black money operating in Bangladesh, Data utilized here were collected from the respective tax circles. Due to legal protection of information the names of the taxpayers of both the Examples and name of the circle of Example 2 are not disclosed. Example-l: Names of the Circles

Number of Taxpayers

Amount of Gift Received (in million take)

Urban Real Estate Sector: Black money transactions are almost universal in urban real estate section. The state of affairs in real estate turns even an honest citizen a tax evader if he participates in this market.

Circle C

109

Circle H

137.6

Moral and Psychological Factors: people in general do not realize their duties to the state to pay the correct amount of taxes.

Table 1 shows that 100 taxpayers received gift atTk.422 million in 1988-89. These taxpayers appeared to the small traders who voluntarily

Circle P

175.4

Total:

100

422..0

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Black Money

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submitted income tax returns only to 'receive gifts.' Let me explain how 'gifting' took place in their cases. These donees themselves in the false and fictitious names of dozens of donors submitted income tax returns under self assessment scheme which allowed anybody on fulfillment of certain conditions (which included payment of negligible amount of tax) to disclose certain amount of untaxed income which the tax authority had to accept without asking him any questions. Each donee having shown to have received gifts from these false and fictitious donors claimed the gift in his balance sheet/wealth statement. Having got this balance sheet/wealth statement accepted by the concerned income tax authority he was immune from payment of any tax. Approximately at the cost of Tk.100/- to 1000/he got white money at Tk.100,000/Whereas in normal situation he had to pay 1o-20o/o tax of the said white money. This white money was invested in the purchase of land, apartments, and buildings or gifted to or loaned by friends and relatives. Names of the Director

Amount of Gift Number of Cases Received (Years of assessment) (in million take)

Director A Director B Director C Director D Director E Director F Director G Director H Director I Director J Total

5 7 6 5 6 6 6 8 7 8 64

3.88 8.27 4.21 3.00 13.70 15.28 17.03 19.28 6.50 17.34 114.49

In Example-2 | have studied 64 cause of 10 directors of a public limited company. These 64 cases are related to the years from 1980-81 to 1988-89. ln these cases these 10 directors in those years received 'gift' at Tk. 1 14.49 million in the same manner as discussed in Example-|. These directors every year invested this 'gift' in the purchase of shares of the public limited company of which they are directors. In this

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way the public limited company instead of distributing dividends among its shareholders were increasing its paid up capital with concealed profit in the name of selling shares to its directors. Due to this malpractice of the public limited company not only hundreds of ordinary share holders were deprived of their lawful dividend but also the share market suffered seriously. Forms of Black Money Black money is kept in different forms and shapes. lt is not easy to classify them in clear language. The most common forms in which black money is kept are stated below - Bank Account: Black money is kept posited in local or foreign banks either in own names or in the names of relatives or trusted men of the black money holders. Normally, a number of such accounts is maintained in different banks and the types of the accounts vary. eg. saving account, fixed deposit, short term deposit, long term deposits etc. These accounts, it is needles to mention, are not disclosed to tax authority. Real Estates: Black money is utilized in acquiring land, apartments, buildings, shops etc. These are often acquired in the names of relatives, friends or trusted men of the black money holder. Stocks and Shares: Blank money is often invested in the purchase of shares and stocks either in own names or in the names of relatives, friends or trusted men of the black money holders. Savings Instruments: Black money is invested in the purchase of different saving instruments issued by directorate of National Savings. Investment in Foreign Country: Black money is sometimes transferred through nofficial channels and is invested outside the country. Cash, Golds, Jewelry et: Black money is also kept in the form of cash, gold, jewelry etc. Under-valued Assets: Investments in personal assets are shown at values much less than their actual cost. Consequences of Black money Black money is ruinous for a number of reasons. lt causes lavish expenditure and

Black Money

conspicuous consumption. Shortage of commodities, inflationary rise in prices, unhealthy speculation are all due to black money. Some of the consequences of black money are briefly discussed below: Loss of Revenue: Black money results in a huge loss of revenue to the government. lt is often said that a deficit budget would become a surplus budget in the absence of black money. Distortions of Resource Allocation: Black money distorts resource allocation and often leads to wasteful use of money. Inequity among Taxpayers: Tax evasion through which black money is generated creates great inequity among the honest and dishonest taxpayers. The position of the salaried persons is the worst because they have little chance to avoid taxes. Professionals and businessmen are able to make use of several means to evade taxes. This has developed a black money culture in the business world. Donation to Political Parties: As black money cannot be used for honest transactions, it results in conspicuous consumption and donations to political parties. All these lead to accumulation of more black money. Misinformation About the Economy: The most obvious consequence of black money is misinformation about the actual state of the economy. We tend to get lower national income estimates. Saving, investment data are distorted. This results in a faulty diagnosis of black money problem, inappropriate policy actions, widespread tax evasion as well as loss of revenue to the government. Leakage from public expenditure affects the efficiency and effectiveness of fiscal policy and planning. Distortion of Economy: The availability of large black money creates distortion in the economy. Black incomes often mean easy money which finds an outlet in non-essential articles of conspicuous consurnption. This has a demonstration effect on all classes of people. in reality conspicuous consumption pattern is tilted in favour of the rich at the cost of encouraging the production of articles of mass consumption. A rise in the overall consumption

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leaves less resource for investment in priority areas. These distortions in the product mix in favour of nonessential consumption have adverse effect on production and thus they distort the objectives of planning. The extent to which scarce resources are used for higher consumption decides the reduction in savings. Distortion of investment Pattern: Black money distorts investment pattern by pushing it in unproductive uses. lt encourages investment in gold, jewelry, bullion etc. This has adverse effect on growth. Black money encourages diversion of resource in the purchase of real estate and investment in luxury houses. Large scale under valuation of property results in conversion of black money into white. There has been astronomical rise in the price of land because of speculative purchase of land by black money operators' As a consequence the middle classes are priced out in the purchase of land for houses. In short lots of national savings are used in making inputs available for luxury housing. Black Liquidity: A large part of black money is held in cash, gold, silver etc. As a result there is an abundance of liquidity which may be termed as black liquidity. This causes to rise in price of commodities and services. Transfer of Funds to Foreign countries: Black money results in the transfer of fund? from Bangladesh to foreign countries through secret and illegal channels. Such transfer is done by violating foreign exchange regulations through the under- invoicing of exp-orts aid over-invoicing of imports. Parallel Economy: Black money provides a fertile field for anti-social elements. Economists say that over the years the unrecorded transactions have grown in size and dimensions and created parallel economy operating simultaneously and competing with the official economy. Black Money Prevents the planning: Growth of black money prevents the benefits of planning from reaching the poor. Rich conceal their incomes by not paying taxes. They become richer as black money grows. Government fails in its goal of achieving an Egalitarian society. THE CHARTERED SECRETARY J A N U A R Y- M A R C H 2 0 11

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Black Money Dwarfs the Growth: Black money distorts the pattern of the saving and investment thereby dwarfs the legitimate growth. It diverts the energy of the people from productive to non productive activities. The resources are used for the production of luxurious goods. Due to black money the demand from such qood increases. But at the same time the country faces the shortage of resources for the implementation of development schemes. Black Money Effects Monetary and Fiscal policies: The unprecedented growth of black money affects the effectiveness of monetary and fiscal policies. Black money has a tendency to grow faster than GDP. Government fails as her policies are based on GDP estimates. Unauthorized Transaction in Foreign Exchange: Avenues of black money leads to unauthorized transactions in foreign exchange just like 'hoondi', bribes, bonus, benami accounts, tax free government securities, contribution to charity in anonymous names. Black Money Deposits in Foreign Banks: Black money is kept outside the country as deposits in foreign banks which deprive the country of a part of its wealth which could have been put to productive use. Inequality of income: One of the worst consequences of tax evasion is inequality of income which has its origin in black money. Existing Tax Amnesty Schemes to Entice Black Money: Existing Tax Amnesty Schemes of Entice Black Money.The Income-tax Ordinance, 1984 offers several tax amnesty schemes to entice black money. Some of the important schemes are as follows: Section 19A. Exemption in Respect of investment in New Industry: Any sum invested by any person in a new industry during the period between the first day of January i997 and the thirty first day of December, 1999 shall be exempt from tax and no question as to the source of such sum shall be raised. Section 19AA. Special Tax Treatment in

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Certain Cases of Investment: No question as to the source of any sum invested by any person in the expansion of balancing, modernization, renovation and extension of an existing industry or in the purchase of stocks, shares of a public limited company listed with any stock exchange in Bangladesh or any sum used for repayment of industrial loan during the period between the first day of January, 1997 and the thirty first day of December,i999 shall be raised if the assessee pays, before the filing of the return for the relevant assessment year income tax at the rate of seven and half percent on such sum. Section 19AAA. Exemption in Respect of investment: Any investment made by an assessee being an individual, firm, association of persons or a private limited company between the first day of July 2002 and thirtieth day of June, ZIIOS in any trade, commercial or industrial venture, engaged in production of goods, or services shall be exempt from tax and no question as to the source of such investment shall be raised. Section 198. special Treatment of Tax in Respect of investment in House Property : No question as to the source of any sum invested by any person in the construction or purchase of any building or apartment shall be raised if the assessee pays, before the assessment is completed for the relevant assessment year, tax at certain rates on the basis of the plinth area of such building or apartment. Section 46A. Exemption From Tax of Newly Established industrial Undertakings: Profits and gains of an industrial undertaking, tourist industry or physical infrastructure facility set up in Bangladesh between the first day of Jury 1 995 and the thirtieth day of z0b5 shall be exempt from payment of tax. Section 83A. Self-assessment : A new assessee who derives income from business or profession can declare any sum of initial capital and for this no explanations to the sources of such investment shall be required if the assessee in his return shows income which is not less than fifteen percent of the declared initial capital.

Black Money

Exemption in Respect of Income from Fishery, poultry, Dairy etc : Any income from fishery, poultry, dairy etc. is exempt from tax lf the assessee invests 100/o of the said income, when the declared income exceeds Tk.1,00,000, in the purchase of bond issued bv the government. Conclusion and Recommendation With foreign assistance drying up, domestic debt creeping up and revenue earning showing no significant improvement, there is no way out but to increase internal resources to formulate development budget and accelerate economic growth. We therefore recommend following measures to entice black money back to formal economy. Collection and Distribution of Information : Information should be collected from banks and other financial institutions import and export offices' custom and VAT offices, city corporation Municipalities, Sub-Registrar Offices, Bangladesh Road Transport Authority, post Offices, all private and public limited companies. Commissioner should be provided with secret service fund to buy information. The Information collected should be distributed among the concerned offices and be properly used. The information gathered about the existing taxpayers should be placed in their respective files and follow-up action must be taken. The information gathered on those who are not taxpayers should be examined and new cases should be registered in the appropriate case. Effective enforcement must be based on suitably comprehensive reliable information system. The important attributes to information system are: the degree of computerization system, sources and nature of different kinds of number (TlN) in transactions, tax withholding systems, methods used to store, process and retrieve information and the use of information in audits. TIN should be used to collate all information gathered regarding major transactions entered into by taxpayers, matching it with corresponding TIN and transmit it to the concerned assessing officers for use in assessment proceedings. Survey for Broadening Tax Base: According

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to a newspaper report there ire about 5 million eligible taxpayers in Bangladesh' (Prothom AIo,7 July,2002) At present about 1.3 million taxpayers are registered for income tax. Survey work should be conducted round the' year with the objective of broadening tax base not only by netting new taxpayers but also by detecting evasion by existing taxpayers' Encouraging Voluntary Compliance: lt is this area that Australia might have some lessons for others. One matter that causes taxpayers to evade is what will help them to comply voluntarily' In this respect the Australian Tax Administration, over recent years, has undergone a fundamental change in approach, from one of trying to detect and penalize non-compliance to one of encouraging or improving voluntary compliance. One of the present day themes of the Australian Tax Administration is helping tax payers toâ&#x20AC;&#x2122; get it right the first timeâ&#x20AC;&#x2122;. To encourage voluntary compliance it should be made a law that no penal proceeding shall be taken against a new taxpayers because the long run success of a tax system depends on the cooperation of the tax payers rather than enforcement of tax laws. This will to a great extent solve the problems arising from the non-filing behavior of a large number of potential tax payers' Tax Audit: Tax audit should be designed to minimize evasion; audit should be random: incomes corresponding to lower taxes should be audited with higher frequency. Those taxpayers who are verified on audit to have reported truthfully ought to be rewarded' Internal Audit : Internal audit and inspection system must attain efficiency of international standard. Penalty Policies: Penalty policies should also -be designed to minimize tax evasion. Detection of evasion by itself is not sufficient, detected evaders must be effectively penalized. This may fail to be realized that in the absence of follow-up prosecution effort evaders are all to avoid or postpone punishment through appeals, judicial delays, amnesty and out of court settlement programmes' Monitoring of Tax Administration : Tax administration must continuously be

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monitored to ensure that it is not contributing to its own failure. Record-Keeping Requirement: where taxpayers fail to keep adequate records, it is difficult to establish their proper tax liability' Tax system should encourage good record keeping and discourage poor record keeping. Good record keeping might be encouraged by advising taxpayers that if they keep good records, they are less likely to be audited. Poor record keeping might be discouraged by thereat of greater chance of being audited. Tax Amnesty Voluntary Disclosure Scheme : There were few takers of government black money amnesty in 2000-2001 ' Only a little more than taka 10 million made it to the surface from the hidden closets following a token ten percent taxes required for legalizing such money. Pakistan tried it out even under military rule but could not Succeed. India too experimented with various measures to mop up such money but to little avail on the whole' ln Bangladesh the tax amnesty failed due to the fact that there existed several similar tax amnesty schemes which are less costly and more convenient for the black money holders. In spite of the apparent failure this scheme may time to time be offered to allure the black money holders because whatever may be the quantity of revenue' the administrative cost involved to collect it" is very minimum' Corporate Tax Rate Cuts: At present the rate of tax for publicity traded company 30%. The rates of corporate tax in some other countries are: United States 1170, lreland 12%0, Hongkong 160/o, Singapore 22o/o, Russia 24o/o and Germany 25o/o (The Daily Star' 4 November, 2002). In view of the worldwide corporate tax cut there is a need to reduce corporate tax rate in Bangladesh' Ethical Requirements of Law and Accounting Professions:Taxpayers usually require help from lawyers and accountants to avoid taxation. In a seminar organized by the Institute of Chartered Accountants of Bangladesh (ICAB) the Governor of Bangladesh Bank blamed some of the audit firms for not disclosing hidden forgeries in the balance sheets of banks and other financial institutions. He sought an institutional

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mechanism to check violation of ethics in certifying financial statements. (The Daily Star, 1 July, 2001)' Government can ask the professional bodies to make ethical rules prohibiting members from assisting taxpayers to undertake tax avoidance arrangement5. Cooperation of Banks: Taxpayers also require help from banks as they not only keep their black money in the banks but also do major transactions with the help of the banks. In many cases bankers have better knowledge of the sources of income of their clients' But they are extremely reluctant to disclose the sensitive information of their clients to tax authority even when legally called for. Hence effective mechanism should be designed to trace all big transactions. Besides, Government can ask Bangladesh Bank to make rules prohibiting bankers assisting tax payers to evade tax. Attitude of the courts: An important factor which will determine how successful a tax administration is in preventing tax avoidance is the approach or attitude of the courts. Now we shall quote at some length from an editorial of Dhaka Law Report which criticizes the superior Judiciary for liberally granting hundreds of orders of stay of realization of revenue : "ln another area of greater national interest' exercise of judicial direction suffered similar questions in the recent times. This ii4ruith regard to cases relating to customs, Vat Income Tax etc. Thousands of writ cases that cropped up due mainly from exercise of such power remained undisposed of for years together' About 10,000 cases most of them pending for years together, still await disposal. The position is alarming for the reason that every week no fewer than 40 fresh cases are added to this staggering 10,000 while on an average hardly 1 0 such cases are disposed of in a week, This back|og of cases is there with orders of stay of realization of the assessed government revenue so liberally granted by the courts in the past mostly even without any form of guarantee or security for payment by a petitioner if he failed to succeed Interlocutory orders of sta, status quo or injunction that were granted so liberally in so many writ cases came at long last under Serious considerations when it was found that cases of government revenue remained inordinately stalled

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seriously affecting the governments budgetary calculations. "The editorial also criticizes tax. Administration for not taking the issue seriously:" government revenue worth crores of taka continue to remain unrealized every week for indefinite period of time. This chiefly because the concerned executives other government go on passing, in many cases careless' reckless and non-speaking orders relating to assessment of revenue, witting or unwittingly and, in no fever cases collusively. t5l DLR (1999)l The editorial also blames the tax authority for not showing a sense of urgency to contest the proceedings started against them . The administrative aspect refers to a system of cuts, commissions and kickbacks by the administrative personnel which cements the link between the first two approaches. Black money is created basically f due to the notion that an acceptable net rate of return of an individual is far in excess of the permissible rate of return under the low of the land after taxationâ&#x20AC;&#x2122;s a result by methods of tax evasion, tax concealment, smuggling in exports and imports, production of illicit commodities, unlicensed commodities orq-.o.large variety of devices of over-invoicing and under-invoicing, artificial escalation for the cost of the project white money is converted into black money. The inflows into the black section from thi white section and the outflows from the black section into the white section go on simultaneously.lt is widely believed that the inflows into black sectors have been becoming stronger than the outflow. This explains the continuous increase in the size of black money of our economy. in this paper having examined different aspects of black economy of 'Bangtodesh attempts have been made to suggest measures to entice the back money back to formal economy. and get the same disposed of early. In this connection it is recommended that a special revenue bench of the High Court consisting of the Judges expert in revenue matters may be set up for speedy disposal of the revenue cases.

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Discriminatory Treatment: Transport sector, for example, enjoys special treatment of tax. Such discriminatory treatment for special groupâ&#x20AC;&#x2122;s of taxpayers should be removed. Income Tax and VAT Close Cooperation: Often high degree of Discrepancy is discovered between the sales disclosed to the income tax authority and the sales disclosed to VAT authority by the taxpayers. To solve the problem assessment should be made with close cooperation between these two authorities. Complaints against the Tax Officials: Any complaints against tax officials should promptly handled to remove the misgivings and 'restore the confidence of the taxpayers. Searches and Seizure: Just two years back,5674 searches were made in India and the total value of asset seized was 4.i billion rupees (88 million dollars). Last year only 2946 searches were conducted and assets seized valued at 2.5 billion rupees (43 million dollars). (The Daily Star, 12 November 2001). In Bangladesh such; searches should be conducted in suspected cases from time to time. Exemption Limit for Tax Withholding: There should not be any exemption limit for tax deducted at source. Tax payers Benevolent Scheme: Since there is no possibility of introducing social security schemes in the near future, a Taxpayers Benevolent Scheme for those taxpayers who paid huge money in taxes to the government exchequer in the past but are now in the need of government help should be introduced. Existing Tax Exemptions: various exemptions allowed by present law should be re-examined with a view of their modifications, curtailment or withdrawal. Gift Tax by Donee: The liability to pay gift tax should also be laid on donees. So all gifts received by a person in a year should be added up and the total should be subjected to gift tax.

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Wealth Tax: reintroduced.

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Wealth

tax

should

Tax Holiday: lt has been found by several studies that tax holiday is not only redundant under existing income tax law but it also create tax haven. lt should immediately be abolished. Weak Political System: In most developing countries the most tax sensitive groups are also the politically significant and there is reluctance on the part of the politicians and administrators to act against their interests. Similar is the case with Bangladesh where the true problems of income tax policy lie in the weak political system where special interest groups can organize to block changes that adversely affect them. As a result the tax administration is neglected characterized by poor training, low status and poor equipment. The most significant issue pertains to enforcement is the high level of evasion due to backward state of tax administration. This has tended to limit revenues from income tax leading to consequences for both equity and efficiency. References: 1. Acharya,5.N., eI.al.,Aspects of the Black Economy in lndi4 New Delhi : National Institute for Public Fir$nce and policy (1986).

2. Cauvery,R.,et.al. Public Finance, New Delhi: S.Chand & Company Ltd. (2000). 3. Cullis,J. and Jones,P, Public Finance and Public Choice, London : McGRAW-HILL Book Company (1 992). 4. Fampton, D., Practical Tax Reform, Bath : Fiscal publications (l 993). 5. Frampton, D., Practical Tax Reform, Bath : Fiscal publications (t 993). 6. Kay, J .A. and King, M. A.,The British Tax System, Oxford: Oxford University press (1990). 7. Sandford, C.T., Godwin & M. and Hardwick p.J.W.,Adm inistrotion ond Compliance Costs of Taxation, Eath : FiscaI Publications (1 989). 8. Sandford,C., 5uccessful Tax Reform, Bath : Fiscal publications (1 993). 9. Sandford, C., Economics of Public Finance, Oxford: pergamon press (1 992) 10. Nurunnabi, M., A Commentary on IncomeTax Laws, Rajshahi : Gulshan Ara (2001 ).

"Dreams are today's answers to tomorrow's questions" - Edgar Cayce

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Leadership

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Special Leadership Intervention Akhter M Chaudhury FCA, FCS

This is yet another article in a seemingly interminable series of writings on the much hyped subject of Leadership. At this level of attention there is a danger of it being relegated to cliché status. Paradoxically, any less attention could condemn the subject to sad indifference and poor note, which would be most unfortunate as the need for leadership is critical, particularly during current times. A natural question that arises is “Exactly what do we mean by Leadership?” Is there a universal definition? After all, the perception of Leadership has been different at different times as different circumstance prevailed. Is it not strange that leaders seem only come to the fore during a crisis rather than in good times? Do we really need leaders except in a crisis? Is there no role for leaders in the good times? Is there indeed a need for leaders when all is well? If so, how does leadership in a crisis differ from that when all is (apparently) well? This article will attempt to address these issues and other questions that may dwell in the minds of those who ponder. So much has been written about Leadership that I am almost embarrassed to add to the vast litany. Yet I feel I must, as I would like to add a new perspective to the discussions and debates on the role of leadership at different times. I must hasten to add that this article is not about political or military leadership. I shall focus instead on the role of Business Leadership at critical junctures of the economic cycle.While any discourse typically starts with a definition of the subject, I will not oblige. It is a term difficult to define, often subjective and applicable to specific situations and therefore of limited general use. I will instead focus on certain dimensions of Leadership and their applicability and value. I say with due humility but fair assertion that my studies on Leadership, though not comprehensive and perhaps not even extensive, are nevertheless significant enough to dare venture into a dissertation on it. These studies include John

Adiar’s “Inspiring Leadership”, from which I have drawn some of the context. While harbouring no pretence to great leadership itself I confess that I vie to it someday. The experiences here are therefore not all my own but of others gleaned from the extensive literature on the subject. The analyses and the propositions are however entirely mine — based on my own studies of the subject and many hours of reflection aided by several decades observing, reading about and trying to emulate the good and the great. No one other I should be the object any derision that this petty prose may provoke. It is said that the need for Leadership is greatest in a crisis. I would take fundamental issue with this widely held view — but more on that later. Meanwhile, let us look briefly at the history of Leadership.Leadership and Military Leadership were synonymous in antiquity. This is because without military might neither political nor commercial power was sustainable. Power really did, to paraphrase Mao Zse Dong, ‘flow from the barrel of a gun’. Other legends that leap to mind are Alexander the Great, J ulius Caesar, Queen Elizabeth I and of course the all too familiar Robert Clive. As political power and military power progressively diverged, military leadership remained important, but political leadership took centre stage with the greatest bearing on day to day life and the future prospects of nations. In parallel with the growing prominence of politics as a national force, commerce grew independently of military and politics. Politics needed leaders to achieve political ends, as did commerce to achieve commercial ends. Distinct streams of leadership grew in each arena, the emphasis and focus of each being separate although the tools were often similar. These continued to evolve and, in the 21st century, political, military and business leadership are all seen as vital but distinct - each with a role specialised for the purpose, similar in means but distinct in

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manner and application. Military leadership can rely the most on command and obedience - political leadership the least, relying more on guile and perception. Somewhere in between is business leadership. Leadership often deals in the intangible, the unknown and the unseen. Faith, trust and confidence in the leader are essential for teams to function properly. The truth about wars often remain shrouded in mystery and misinformation for so long that reports of questionable military leadership only surface many years after the soldier is dead - and very few are inclined to vilify the dead. Failure in political leadership is often rewarded with a peerage or some juicy diplomatic diversion. Failure in commercial leadership is however unforgiving and dealt with very harshly and promptly. Disgrace is immediate. I will concentrate here on leadership in commerce and industry, not so much on the traits of leadership as on the junctures of the economic cycle at which leadership and intervention are of the most crucial need and the greatest importance. But first let us recapitulate some of the essentials of leadership. There are three forms of authority: the authority of rank or position, the authority of personality and the authority of knowledge. Authority is power-not leadership. Knowledge, on the other hand, is the gateway to leadership. As far back as the time of Socrates it was believed that leadership is tied to situations and depends largely upon the leader having the appropriate knowledge. Obviously people will obey willingly only those whom they perceive to be better qualified or more knowledgeable than they are in a particular situation. Professional or technical competence should therefore be a prerequisite for holding a position of leadership responsibility. Once leadership has been established, however, it must be continually reinforced by the actions of the leader. Exercise of sound knowledge or technical skills is not enough. Leaders must lead by example. Nothing they do escapes attention. They encourage people. They renew spirits, giving others fresh courage to pursue the common goal. Leaders should be strong administrators, as a lack of firmness leads to loss of respect.

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Now to my dispute with the contention, that “leadership is most needed in a crisis”. A crisis arises after much has already gone wrong and the situation is desperate. So, where was the leader when things started to go wrong? In my opinion, leadership is most needed, and therefore is of the greatest value, before the situation descends into a crisis. Intervention must come before the crisis occurs. It must take place immediately that things start to go wrong, not after disaster occurs. Good leaders will intervene to prevent a negative trend from descending into a crisis. This is when corrective actions are most needed. They must quickly chart a course to prevent a slide into disaster and to prepare for the upturn. Timely intervention by the leader can minimise the depth of the trough and restore the organisation, more quickly, to the road to recovery. My second but related proposition is that the value of leadership is equally vital in times of prosperity as in adversity. Just when things are going well, there looms the spectre of the inevitable decline that follows the peak, manifest in the cycle of boom and bust. Leadership intervention at this critical juncture will enable an organisation to prepare for the downturn. There never really is a good point in the economic cycle, as each point is either declining or it is ascending towards a peak from which it will then decline. Anticipation, planning and communication can lengthen the up cycle and shorten the down cycle. Complacency in times of prosperity is a common human failing. Leaders however must rise above the common — in fact that is a hallmark of their leadership. They must intervene when the trend is positive so that the organisation can maximise opportunities, ride the crest for longer and peak higher than otherwise. On the way down a good leader will intervene to ease the slope of the decline and minimise the depth of the trough before the cycle of recovery begins again. A clear impression that the leader has the situation in his grip provides confidence to the team that the organisation will ride out the storm with a minimum of pain. The enthusiasm of theleader

Leadership

can spur the energy of the team to achieve the future that they in fact create for themselves. From the foregoing it should be obvious that good leadership is critical for minimising troughs of adversity and maximising peaks of prosperity. Leadership is needed when times are good, when in a crisis, when things are getting worse and also when they are improving. Leadership is therefore always needed and always critical and always important, regardless of the point in the economic cycle. It somewhat demeans the vitality of leadership to contend that it is critical merely in a crisis or even in some other particular circumstance. Having said that, leadership intervention is more crucial at certain critical junctures of the economic cycle than at others. These critical points, I suggest, are about halfway up the boom cycle and about halfway down the bust cycle. Such intervention I have dubbed as “Special Leadership Intervention” (SLI) and the points at which such intervention is needed as “Special Leadership Intervention Points” or SLIPs. SLI maximises the peak and rninimises the trough. Leadership is of course crucial at every stage of the economic cycle but none more so than that at the SLIPs. Theoretically, at least, Special Leadership Intervention can completely avoid the worst effects of at least one downturn in five. The attached diagram illustrates my proposition, rendering, I think, further elaboration on this specific aspect unnecessary. Typical Economic Cycle

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Leaders must know when to intervene. They must therefore be sensitive to trends. They must anticipate and challenge conventional wisdom. They must devise solutions to confront the many challenges they face from time to time. They must be creative as each challenge is unique. After all, no two objects or phenomenon in the universe are identical — so why should any two issues be so identical as to be responsive to the same solution? Learning from each challenge improves a leader’s judgement but they do not provide him with a toolbox of readymade solutions. A leader must be prepared to be decisive even in the absence of full information. Most decisions that leaders take are about the future, about which it is impossible to have all facts and information. This calls for judgment. Those who require full facts and information before they can make a decision do not make good leaders. To quote marketing guru Philip Kotler “The best way to predict the future is to create it” or words to this effect. And who better to visualise the future and inspire the team to create it than the leader? Leaders must have the courage to take bold decisions. Courage is not being devoid of fear; it is the wil1 or ability to control fear and to draw from it energy and resolution — to turn adversity to advantage! In the words of Rahm Emanuel “Never waste a crisis”! In line with the basic precept, leaders should never take their eye off the ball. They must always be visible, even palpable. Leadership is needed at all times, particularly at the SLIPs. I end this article with the hope that this modest offering will be of some help to good leaders in their quest to become great leaders.

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