Current tax status of RMG industry
- Corporate tax 12%; it is 10% for green factories
- Source tax on export 0.5%
- Source tax on cash incentive 10%
- Source tax on compliance audit bill from ERQ fund 20%
- The apparel sector contributes about 85% to national export earnings
The forthcoming national budget may not have anything special to offer for the apparel industry – the largest export-earning sector in the country – even though the budget is expected to focus on boosting exports and the industrial sector to create more employment.
Officials at the Ministry of Finance on the condition of anonymity told The Business Standard that the proposed budget for the 2021-22 fiscal year may not bring any changes to the existing rules applicable for the apparel industry – meaning the current tax and other duty rates will continue for at least one more year.
The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) have been asking for budgetary policy support as the sector has been suffering for over a year due to Covid-19 pandemic.
Speaking to The Business Standard, BGMEA President Faruque Hassan said, "We are not sure what will be there in the next budget for the apparel industry, but we hope the government will take the right decision to help the industry become more competitive."
He said government support to export-oriented industries would help local industries through increased circulation of money.
Further explaining that, Faruque Hassan said if the government offers budgetary policy support to export-oriented industries, more employment opportunities could be created through new investments. Besides, the government will be able to realise more revenue, he further added.
The BGMEA in its budget proposals has urged the government to bring down the source tax on RMG exports to .25% from the current rate of .50%.
On the other hand, the BKMEA has asked for fixing the source tax and take it as the final settlement.
BKMEA First Vice President Mohammad Hatem said, "Apparel exporters have not any chance to adjust this tax, which is why we have requested the National Board of Revenue to take it as the final settlement."
If the provision of assessment continues, exporters might feel more pressure, he observed, adding, "All RMG factories are running without profit. Most of them are continuing production despite incurring losses every month."
Faruque Hassan of the BGMEA said 10% tax on export cash incentive is totally illogical. "The incentive is not any income for apparel exporters. The government has allocated this incentive to make the sector competitive."
He urged the government to withdraw the tax on cash incentives.
Man-made Fibre (MMF) based products can be the game changer for product diversification, as Bangladesh still depends on cotton-based items. RMG may bring good results with MMF products, as they have a significant scope for growth.
MMF garments have more than 70% market share in the global apparel market, but such items amount to only about 25% of Bangladesh's apparel exports.
"The government may provide a 10% cash incentive on MMF based apparel export and I believe it will make a difference when it comes to product diversification", said the BGMEA president.
Mohammad Hatem of the BKMEA also demanded withdrawal of duty on ETP chemicals and fire safety equipment.
He also mentioned that they can import fire safety equipment under a duty-free facility once, but they have to pay a high duty for expanding the capacity or replacing any equipment.
Abdul Kader Khan, president of the Bangladesh Garments Accessories and Packaging Manufacturers and Exporters Association (BGAPMEA), said, "In spite of being linked to the garment manufacturing industry, the accessories sector has been a victim of discrimination."
"The garment industry is enjoying a reduced corporate tax of 12%, but the accessories sector has to pay 32.5%. However, the accessories sector accounts for 15-20% of the total export earnings in the RMG sector," he explained.
"New investment will come, if we can eliminate inequalities in this sector. Then, there will be no need to import accessories."
The apparel sector contributes about 85% to national export earnings, which declined to $27.94 billion in the last fiscal year from $34.13 billion a year ago due to Covid-19.
Shariah-based bond Sukuk may get tax exemption
The NBR has proposed to offer tax exemption for Islamic Shariah-based bond "Sukuk" to attract investors.
The Bangladesh Bank on 4 March this year sent a letter to the NBR, saying that currently there is no source tax on investments in US Dollar premium Bonds, US Dollar Investment Bonds and Wage Earners Development Bonds. But Sukuk bonds are taxed at 5% at source.
On 26 December last year, the central bank issued Sukuk bonds for the first time. In this bond, investors will get a 4.69% return on the capital. The term of the bond is five years. Investors will receive profits twice a year from Sukuk.