With $2.5 billion investment proposals in the pipeline, the textile sector appears to be in the government's good books. The ministry concerned recommends the revenue authority for some favour in taxes, while the revenue authority itself is working to make customs procedures easier for the sector to save money and time.
These will help the textile industry move faster with its next venture – to create a stronger backward linkage for the apparel industry by boosting local production of man-made fibre and thus reducing import bills for cotton.
In response to the industry's long-held demand, the National Board of Revenue (NBR) has taken steps to resolve complexities concerning the harmonised system (HS) code in importing various spare parts of textile mills.
The revenue board is also looking positively at the demand for lowering VAT on local supply for blended yarn and fabrics like polyester, synthetic, viscose and lycra (combinedly known as man-made fibre).
As the budget for the next fiscal year is in the works, the Ministry of Textiles and Jute has urged the NBR to keep the income tax rate at 15% for textile and spinning millers till 2026 – as the benefit is set to end on 30 June 2022.
The initiatives have come in tandem with the spirit of the upcoming National Industrial Policy that proposes tax breaks and subsidies on capital investment for import substitute industries.
Bangladesh spends Tk53,000 crore on cotton imports, which accounts for 13% of the country's total import bills.
The already drafted new industrial policy is designed to discourage such imports and support backward linkages and local production of capital machinery and spare parts for industries like apparel, automobile and pharmaceutical.
Furthermore, the Bangladesh Textile Mills Association (BTMA) has long been complaining on how HS code complexities are making imports of spare parts costlier than the capital machinery.
It sent a list of 122 electrical, electronics and mechanical items to the NBR recently to include in the list of HS codes as import of these items cost the industry higher.
Earlier, the two parties held a meeting to solve the problem after which the NBR asked the entrepreneurs for the list of equipment and parts.
Entrepreneurs said if the list is approved by the NBR, it would reduce the time, money and hassle regarding importing these listed items.
The HS code is a common international standard used by customs officials to identify export-import goods.
Currently, entrepreneurs have to pay 1% duty for importing any type of equipment for setting up industries. As per the NBR, spare parts worth up to 10% of the prices of the equipment can be imported at the same tariff.
According to BTMA sources, the NBR has a list of HS codes for more than 200 items which receive reduced tariff rates. The list was prepared two decades ago and now the factories need many new equipment and spare parts that are not included in the list.
Khorshed Alam, former director of the BTMA and chairman of Little Star Spinning Mills Limited, told The Business Standard, "We need many new machines and spare parts which are not on the NBR list. When these spare parts are imported, the customs officials do not want to release them. In that case, we have to pay 26% or more duty-tax for commercial imports of spare parts."
Another importer, on condition of anonymity, said, "These parts are related to industrial equipment. As they are not listed, customs officers demand extra money to release them at the reduced duty rate. However, if we do not pay the extra money, they include the products in different HS codes and charge a huge amount of duty."
In a letter to the NBR, Mohammad Ali Khokon, president of BTMA, said, "It has been almost 20 years since the inclusion of the equipment and spare parts currently on the reduced rate list. Bangladesh's textiles are now in the era of the Fourth Industrial Revolution, so we have to use 3rd and 4th generation machinery."
He told The Business Standard, "We hope that if the spare parts that we mentioned are included in the NBR list and allowed reduced rates it would ease the complexity and harassment that we are facing."
Lutfor Rahman, former NBR member of customs policy, said, "The NBR will definitely consider the logical part of the list sent by the entrepreneurs."
A senior official at the NBR's customs department said on condition of anonymity, "We have to consider whether there are any high-tariff parts or any parts that are produced by our domestic industry in the list provided by the entrepreneurs."
Ministry wants NBR to keep the industry tax lower
The textile ministry said in a recent letter that for the development of the textile sector and boost the export earnings, the NBR should extend the existing lower tax on textile as requested by the industry association BTMA.
Entrepreneurs who are involved in yarn production, dying, finishing, coning, fabrics production, fabrics dying, finishing, printing and other similar activities will enjoy the benefit.
If tax is hiked in the next budget, the cost of doing business will go up and the industry will lose competitiveness in the global market, textile and apparel sectors entrepreneurs said.
The ministry in its letter termed the textile industry a heavy industry, saying the existing tax rate, lowered in 2015, should continue as the country's textile sector is set to add 2.5 million spindles by investing $2.5 billion within 2023 to boost production capacity amid growing demand.
Besides, a number of entrepreneurs have already invested in man-made fibre manufacturing to produce diversified and modern yarn and fabrics to meet future demand.
According to the BTMA, apparel entrepreneurs imported over 5.52 lakh tonnes of woven fabrics in 2021, which was about 4.21 lakh tonnes in 2020.
The association also mentioned that the local spinning millers meet 80% of the demand for export-oriented knitted fabrics, while they account for only 40% of woven fabric supplies.
Since Bangladesh is still focused on cotton fabrics, woven apparel makers need to depend on imports to meet around 60% demand for non-cotton fabrics.
BTMA President Mohammad Ali Khokon said that as textiles is a capital-intensive industry, huge turnover tax will be an extra burden which will increase cost of doing business and have an adverse impact on apparel exporters.
Currently, the tax rate for ready-made garments is 12%. Besides, for the textile sector, the tax rate is 15%, and the rate will be 200 basis points lower if anyone has a green factory certificate.
Generally, the corporate tax rate in the country is 22.5% for publicly listed companies and 30% for non-listed companies.