Frequent change in duty and VAT is bringing adverse effects into the industry and discouraging new investment
The demand was going strong until the budget struck and then sales plummeted – this is the motorcycle story today.
Revving on ride sharing services like Uber and Pathao and a growing middle-class, motorcycle sales also zipped.
The sales growth was 5.3 percent in July-August of 2018, which dropped to 2.7 percent during the same period of this year. The biggest disappointment came this August as 16 percent less motorcycles were sold.
And all this because the government thought the growing motorcycle sector could be a good revenue earner and so imposed additional duties and value added tax (VAT).
The result is now a damp squib as the middle-class is holding back.
Raju Ahmed is one of them. A data artist at a graphics firm and fresh from a private university, he was thinking of buying a bike so that he could reach his office in Banani from Mohammadpur faster and without having to go through the hassle of public commuting.
He had an eye for a scooty that had a price tag of Tk 1.62 lakh. Yesterday his heart sank as the price went north to Tk 1.65 lakh.
Raju had to put on hold his purchase, at least for now.
This is how sales have dipped and the government's quest to collect more money from the sector is also set to fail.
A total of 97,510 motorbikes were sold in the first two months of the current fiscal year, which was 93,874 during the same period last fiscal year.
The new VAT law has imposed 5 percent VAT, 5 percent advance tax (AT) and four dollars of tariff per kilogram — and this is affecting production. At customer level, each bike's price has hiked by Tk5,000 to Tk12,000.
Moreover, the government has imposed 5 percent supplementary duty (SD) and 10 percent service charge on motorbike registration.
Motorcycle factories had been enjoying 15 percent VAT exemption since 2010. A Statutory Regulatory Order (SRO) issued by the National Board of Revenue (NBR) in 2018-19 fiscal said this facility will remain valid till June 30, 2020.
The government will then decide whether it will continue the facility in the next fiscal year.
According to the new VAT law, if the facility continues, manufacturers who enjoyed the facility for 7 years or more will have to pay 10 percent VAT then. Manufacturers who enjoyed it for 3 years or 5 years will have to pay 5 percent and 7 percent VAT, respectively.
Older companies will be weaker then, because of the rise in price of their motorcycles. This will also discourage new investors.
Industry insiders said frequent change in tariff policy is upsetting the sector.
A matter of Tk5,000 crore
Biplab Kumar Roy, chief executive of TVS Auto Bangladesh, said nearly 1,000 to 1,500 motorcycle units are being sold every day in Bangladesh. About 500,000 units of motorbikes of several brands were sold in 2018.
If the price of each bike is estimated at an average of Tk1 lakh, the local industry size currently stands at nearly Tk5,000 crore.
The Ministry of Industries, in its policy for developing the motorcycle manufacturing industry, aims to produce one million motorbikes locally by 2027.
By 2025, this sector is planned to contribute 2.5 percent to the national gross domestic product (GDP). The rate is currently below one percent.
The government plans this sector will generate 1.5 million direct and indirect employments. The number is currently around 500,000.
However, entrepreneurs say the government could reach their target within the next five years.
Currently, Bajaj, TVS, Honda, Hero, Yamaha, Mahindra and Suzuki are manufacturing motorbikes in Bangladesh.
Local brand Runner has established their plant in Bangladesh for manufacturing bikes at affordable costs. The brand has begun manufacturing Italian Vespa scooters as well.
Besides, local brands Grameen Motor and Roadmaster are also in production.
Indian brand Bajaj, established in collaboration with Uttara Motors, is leading the sector. It occupies around 35 percent of the Bangladeshi motorcycle market. TVS, Hero and Runner respectively stand second, third, and fourth with 20, 15 and 8-10 percent market share.
Runner Group Chairman Hafizur Rahman Khan told The Business Standard that the demand for motorbikes was on the rise in line with people's increasing purchasing power.
"Frequent change in duty and VAT is bringing adverse effects into the industry and discouraging new investment as well," he added.
Rahman believes if Bangladesh can manufacture motorbike parts locally, the sector will flourish. "There is no alternative to an industry-friendly tariff policy."
Meanwhile, HMCL Niloy Bangladesh Limited CFO and Company Secretary Bijoy Kumar Mondol said the policy had been investment-friendly even last year. He said many manufacturers were preparing to invest in Bangladesh.
"Even we were supposed to invest Tk300 crore," he claimed, adding: "If you change the policy every year, investors will obviously turn their faces away. Advance tax has been imposed this fiscal year. Moreover, VAT has been introduced on sale. We do not know what comes next. We are concerned."
He said their sales have dropped due to the motorbike price hike. The company projects sale of 450,000 units this fiscal year, which will decrease their sales growth.