Doubled source tax to put RMG exporters into trouble: Businesses

Infographic: TBS

The country's export-oriented sectors, including the apparel industry, will face huge losses if the source tax on export proceeds doubles as proposed in the fiscal budget for 2022-23 – despite incorporating some initiatives to support businesses, RMG exporters said.

In an online seminar organised by The Business Standard on Wednesday, they argued that a two-fold hike in source tax, especially at a time when the production cost is on a constant rise because of rallying prices of everything associated with production, including gas and electricity, will put more stress on already ailing businesses.

This might compel many garment factories to shut down, they added.

Mohammad Hatem, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), and Fazlul Hoque, managing director of Plummy Fashion, participated at the webinar moderated by Sharier Khan, executive editor of TBS.

Fazlul Hoque said, "The global economy is undergoing a slowdown. Buyers from America and Europe will buy fewer products from us amid soaring inflation in their native countries. There is also a risk of a future recession there. What could be the rationale for raising taxes at this time?"

Again, the price of gas was raised on the very day the budget was proposed, as a result of which prices of electricity and oil will go up, he added.

"These things will affect our production costs. The government should consider the issues judiciously."

The government had provided a lot of assistance for the development of the garment sector in the past, which helped to boost the country's export income, Fazlul Hoque pointed out.

"If we take a positive decision on taxes, our exports will increase further," he said.

Mohammad Hatem said, "Hiking the source tax rate to 1% from 0.5% would be a big blow to our export trade. This proposal has overshadowed many other good aspects of the budget."

The corporate tax rate has been reduced to 12%, he mentioned, adding, "But if there is no chance to get back the 1% source tax (in case of loss or low profit), the low corporate tax would be of no use," he said.

"There is a 25% tax on the FDR that we keep as a security deposit in banks. If the amount is above Tk20 crore, a surcharge becomes applicable on it. There is no chance of getting back the tax that was deducted earlier," he added.

Mohammad Hatem further said, "Again, the deputy commissioners of taxes disallow a lot of expenses, on which 30% tax is levied."

He alleged that the government has made a legal system to punish the businessmen, "The taxation system of the country is not conducive to investment and business, which is why we are failing to attract much foreign investment despite so much efforts."

The two entrepreneurs, however, hailed some positive proposals in the budget including the continuation of export cash assistance.

Regarding cash assistance on export, Fazlul Hoque said, "A large part of the cash assistance is mainly given for textiles. This support is for the use of local fabric or yarn."

They said although orders for garments products from the main export destinations of the country are declining due to inflation and recession, there is a possibility of orders being diverted from China to Bangladesh in the future.

Fazlul Hoque said, "Orders would be diverted from China because of the US embargo on Chinese cotton, most of which would go to Vietnam. But, due to the severe labour crisis there, a large part may come to Bangladesh. India and Pakistan can also get a good share."

Mohammad Hatem urged the authorities concerned, including the NBR, to be business friendly in capturing these possibilities.

He said, "The NBR is the main obstacle to import and export in Bangladesh. There must be some improvement here."

Sharier Khan said, "The government has been providing various assistance to the garment sector for a long time. The NBR is now a lot more involved than in the past. We hope it will be more business-friendly in the future."