Legal bar on back-to-back LC for non-bonded exports likely to go

The existing legal barriers to back-to-back LC for non-bonded exports are likely to go, allowing the exporters the opportunity to procure raw materials and accessories on credit using the benefit. 

The committee, formed on 21 September to decide on the fate of such benefit for those without bond licences, at its first meeting on Monday sounded positive in regard to amending the VAT law, according to a source present in the meeting. 

Mohammad Hatem, first vice-president at the Bangladesh Knitwear Manufacturer & Exporters Association (BKMEA), told The Business Standard, "We on behalf of non-bonded exporters will present a proposal after identifying all legal barriers to continuation of the back-to-back LC facility. The government's agencies will come up with their recommendations too." 

"We will meet again after a week and we hope all complexities will be removed after an amendment to the existing law," said Hatem, who attended the meeting. 

Echoing him, Shahadat Hossain Shohel, president at the Bangladesh Terry Towel Manufacturer & Exporters Association, said, "We had a positive discussion in the meeting. We will hopefully reach a solution soon."

The revenue board in a letter on 31 August requested the Bangladesh Bank not to allow non-bonded apparel factories the back-to-back LC facility as it contradicts the central bank's guidelines.  

Industry people said if the benefit goes, at least 500 knitwear and home textile factories will no longer be able to procure raw materials and accessories on credit. Instead, they will have to make full payments plus VAT in cash for local purchases, which will make their survival very difficult.

In a back-to-back LC, an importer issues an LC to an exporter and the exporter can use it as collateral to get another LC issued for sourcing raw materials and accessories on credit. 

With over 3 lakh workers, such factories export goods amounting to around $5 billion annually. 

Following the National Board of Revenue's letter, Commerce Minister Tipu Munshi and Prime Minister's private industry and investment adviser Salman F Rahman had a meeting with representatives from all related parties around two weeks ago. At the meeting, a committee was formed to resolve the issue. 

The NBR was also requested to withdraw its letter, but it has not done so yet, according to sources.