How one reform can lead to more: The spillover impact of legal reform in Bangladesh

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Business reforms have an impact not only on businesses, and thereby on the economy and society, but also within government. When one part of government carries out a reform, it is noticed by others in government – and sometimes dynamics are created that lead to even more reforms.

Such a spillover impact can happen within the same government office that pursued the initial reform, or it can occur in other agencies, including those working in unrelated areas. Often the multiplier effect is unanticipated and the wider impact may not happen automatically. Project teams that support the initial reform may need to do something extra to nudge the dynamics in the right direction.

Back in 2008, the International Finance Corporation (IFC) was approached by the Bangladesh chapter of the International Chamber of Commerce (ICC-B) for support in bringing its ambitious idea of arbitration into practice. Three years of rigorous preparatory work – including due diligence of market demand, learning about global experience, and socializing the idea among stakeholders in Bangladesh – led to the establishment of the Bangladesh International Arbitration Center (BIAC) in 2011.

This initiative – through an IFC-supported consortium of three premier business chambers: ICC-B, the Dhaka Chamber of Commerce and Industries (DCCI) and the Metropolitan Chamber of Commerce – was an important milestone in itself. But there was more to come.


From establishing a facility to changing the law

During project design, the implementing team thought that establishing and operationalizing BIAC would be sufficient for introducing ADR in Bangladesh. Implementation, however, had more sobering lessons. It quickly became apparent that, for BIAC to succeed, changes would also be required in the legal and regulatory environment governing dispute resolution. As the organization’s credibility was critical to its operational success, the team initiated discussions with the Ministry of Law (MoL) to win its support for the enactment of regulatory and legislative changes, as well as the endorsement of BIAC rules.

Buy-in from the MoL was essential and, through hard work and some good fortune, eventually materialized. The MoL acted as a champion for ADR, endorsing it and introducing supporting regulatory reforms with the amendment of the Civil Procedure Code (CPC) in 2012. Legal and logistical support from MoL provided the impetus that was needed to set up institutional mechanisms that would sustain ADR in both the medium and the long term.

The Law Minister at that time, who had been a practicing lawyer, had already become interested in ADR mechanisms. The project team used that factor in its favor to provide a critical nudge that converted the Minister’s interest into concrete actions by his Ministry. Although the officials in the Ministry had already warmed to the ADR idea, they gained further motivation when they realized that their boss, the Minister, supported the idea. The idea of pursuing ADR reforms might have remained just a personal interest of the Minister – but the ability of the project to provide an extra nudge to the Ministry’s officials made a crucial difference.

From streamlining of tax processes to an ADR for tax disputes

IFC’s Investment Climate program also involved simultaneous work on tax administration. This included exposing clients to global good practices and reforms in action. For example, a study tour took officials of the National Board of Revenue (NBR, the tax administration agency) to South Africa, where they saw first-hand the operation of an ADR mechanism to help resolve tax-related disputes. This resonated with them immediately. Tax disputes, especially those related to customs valuations, are common in Bangladesh and typically remain unresolved for months – or even years. This locks up capital that is needed for business investment, and it immobilizes a source of revenue for the government. The courts had proven slow to resolve such disputes. Not surprisingly, the South Africa ADR mechanism sparked interest among the Bangladeshi tax officials – stakeholders outside the initial work area of the IFC ADR team.

As with the Minister, this interest might have remained unaddressed. However, the IFC team that was working on tax-administration reforms teamed up with colleagues who were working on ADR reforms, initiating discussions with NBR on introducing an ADR mechanism for tax disputes.

Introduced in March 2012, the tax ADR system was launched based on successful global practices, especially the South African model. IFC had been supporting several reforms in the NBR, including a landmark initiative to digitize tax administration. The Tax ADR project was added to the latest in a series of path-breaking interventions launched as part of the strategic focus of NBR.

The new process allows taxpayers to amicably settle their income tax, value-added tax (VAT), and customs disputes out of court with the help of a facilitator, in a quick, transparent and cost-effective manner. The NBR amended all the relevant laws in 2011 to introduce facilitation (largely derived from the concept of mediation), and it enacted relevant ADR rules and procedures. The MoL, already committed to ADR mechanisms, was deeply involved when the tax laws were amended and the rules finalized.

The NBR worked very closely with the private sector to sustain this program. The first panel of ADR facilitators was created with the support of the Federation of Bangladesh Chambers of Commerce and Industry. Other wide-ranging activities followed, including training and developing a pool of skilled facilitators; ensuring a steady supply of cases through mass promotion and targeted outreach seminars; and introducing pertinent amendments to the relevant rules. Tax disputes are always a bone of contention between government and business. NBR’s strategy to engage closely with the private sector was thus a pragmatic approach.

Many of these outcomes of the project, especially the one involving tax ADR, were not on the horizon when BIAC was conceived back in 2008. BIAC’s successful launch – an important reform introducing ADR in Bangladesh – generated unanticipated dynamics that led to even more reforms. Similarly, a tax ADR was not initially on the horizon of the tax administration reform project, but dynamics emerged that led to this important reform.

The valuable confluence of what started as two separate reform processes turned out to have multiplier effects. The project yielded returns that were significantly greater than those that were initially expected. This outcome illustrates the essence of development – how one success can lead to another, and yet another.



S. Akhtar Mahmood

Lead Investment Policy Officer

Mahjabeen Quader

Senior Policy Advisor at the Royal Netherlands Embassy in Dhaka, Bangladesh

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