Bond misuse almost halves, saves Bangladesh $1.45b in Jul-Sep

TBS Illustration

The misuse of bond facilities, which grant import duty concessions for raw materials utilised in export-oriented sectors, has seen a 50% decline in the first three months of the current fiscal year.

The value of this reduction is worth $1.45 billion in the first quarter of the current financial year as the government provided around Tk1 lakh crore in tax concessions on raw material imports under the bond facility in FY2022-23, according to the National Board of Revenue (NBR).

Customs data shows the gap between raw material imports and the export of goods manufactured from these materials has contracted to 22% in the first three months (July-September) of FY24. This marks a significant improvement from the 40% gap observed in the corresponding period of FY23 and a more substantial 45% two years ago.

Customs officials attribute this positive trend to the successful implementation of digital technologies, which have bolstered the trade data collection and analysis capabilities of the NBR.

The revenue board is now capable of monitoring and regulating the utilisation of bonds with the integration of the Customs Department's software, ASYCUDAWorld, with various institutions, including banks engaged in import and export activities.

According to customs data, the import of raw materials under the bond facility was slightly over 14 lakh tonnes in July-September of FY23 with exports during the same period totalling 8.30 lakh tonnes. The gap between imports and exports was about 5.5 lakh tonnes.

In the first three months of FY24, imports amounted to around 10.18 lakh tonnes, and exports reached approximately 8 lakh tonnes, showing a narrowing gap.

Benefits worth Tk16,000cr

The customs department estimates that the value of the reduction in the import-export gap has resulted in benefits worth $1.45 billion, equivalent to Tk16,000 crore. Assuming the current rate of gap reduction persists throughout the fiscal year, the potential savings could reach $5.8 billion.

A senior NBR customs official, on condition of anonymity, told TBS, "This is an initial assessment, and based on this, we have attempted to estimate the potential gap reduction by the end of the fiscal year."

"Local exports, also known as double counting, and home consumption bond accounts were excluded from this calculation. While the figure may vary throughout the year, we can confidently conclude that bond misuse is declining significantly," he said.

According to sources, the customs department has been scrutinising information from various sources, including its own ASYCUDA World software, utility declaration (UD) information provided by exporters, and other import and export documents. This comprehensive review has uncovered irregularities in over a hundred manufacturing companies.

8,000 bond facility holders

As of now, there exist 8,000 bond licence holders in the country, out of which approximately 5,000 are active. Without the duty-free bond facility, importers face taxes of around 50% on imported products or raw materials.

Under the bond facility, importers are allowed to bring in raw materials without paying import duties, on the condition that they use these materials to manufacture goods for export. However, there have been instances where importers have misused the facility, such as selling raw materials to local companies that cannot import the products under the bond facility.

The government has been waiving tax on the import of raw materials to enable the exporters in the country to compete in the global market with a condition that the imported raw materials should be kept in a specific warehouse and all the products made with them should be exported. This is known as the Bonded Warehouse Facility, which has been provided by the government since the 1980s. But if these products are to be sold in the local market, applicable tax has to be paid.

However, the absence of rigorous monitoring has led to allegations of raw materials being imported under duty-free privileges and subsequently diverted to the local open market instead of being used to make export products. 

Addressing the advantages of reducing the import-export gap under the bond facility, the NBR official told TBS, "A narrowing of this gap now implies a reduction in duty-free imports, leading to an increase in commercial or tax-paid imports."

"Numbers should be taken with a grain of salt"

Farid Uddin, former NBR member (customs policy), said the calculation that the reduced import-export gap in the three months saved the country $1.45 billion or $6 billion at the end of the year should be taken with a grain of salt. However, it is true that bond irregularities are decreasing.

He told TBS, "Automation efforts within the Customs department have yielded significant progress. The integration of ASYCUDAWorld software with data from lien bank, UD, Bill of Export, Bill of Import, and other organisations has streamlined information access. Additionally, valuable contributions from the NBR and field-level teams have contributed to a reduction in irregularities."

Farid Uddin pointed out the prevalence of irregularities among local companies producing accessories under back-to-back letters of credit (LCs), emphasising the potential benefits of integrating their Utility Permissions (UPs) online.

Mohammad Hatem, executive president of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) told TBS, "We welcome any practical steps to prevent abuse, but care must be taken to ensure that genuine exporters are not harassed or harmed."

In this regard, he raised various allegations of harassment of the exporters through the customs authorities at the port.