With an aim to increase production of non-cotton garment products to meet global challenges, the country's readymade garments (RMG) owners have demanded a tax exemption in the next budget on the import of all types of fibre used in the country's spinning and textile mills.
At the same time, like the tariff on capital machinery, they have demanded a 1% duty on the import of spare parts used in textile and RMG factories from the next budget.
At present, there is zero duty on imported cotton and 15% duty on import of non-cotton fiber used as raw materials for the RMG sector. Although they pay 1% duty on imported capital equipment, they have to pay 28% to 104% tax on the import of spare parts.
In order to tackle the crises created by the ongoing coronavirus pandemic and to survive in a competitive market, three organisations in the textile and garments sector — Bangladesh Garments Manufacturers and Exporters Association (BGMEA), Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) and the Bangladesh Textile Mills Association (BTMA) — raised the demands in a letter sent to Finance Minister AHM Mustafa Kamal on Monday.
In order to make up the losses inflicted by the pandemic, the government already provided a Tk7,500 crore stimulus package for the export-oriented RMG sector in 2020.
BGMEA President Faruque Hassan told The Business Standard (TBS) that 74% of global RMG products are non-cotton based. But in practice, we are just the opposite. Around 70% of us are cotton based. As a result, we are lagging behind the competition. This practice needs to change quickly.
He said entrepreneurs are inclined to import cotton due to the duty free facility, and are hence lagging behind in the global competitive market. In order to keep the country's garments industry competitive, it is necessary to provide duty free access to import of non-cotton raw materials for the RMG sector. If fiber is available, this industry will be able to deal with the pandemic crisis.
According to the letter from the three organisations, the country's garment industry has come a long way due to duty free access to cotton imports. Non-cotton yarn imports are subject to a 15% duty. Entrepreneurs are now interested to produce high value non-cotton yarn garments, considering global demand.
According to the three organisations, besides various types of non-cotton yarn, spinning mills in the country's textile sector use cotton as a raw material. Its use is expected to increase in the future.
The letter argues that in order to maintain international competitiveness of the country's textile and garment sector, it is necessary to withdraw tariffs on all types of fibers. In this case, it is reasonable to impose the same VAT rate on all types of fiber yarn.
The letter to the finance minister further said that state of the art computerised machinery is being used in the spinning, weaving, dyeing, printing, and finishing mills in the primary textile sector as well as in RMG factories. Basically, the parts are imported from the same foreign companies from where the capital equipment is also imported. At present, there is a minimum tariff of 26.2% and a maximum of 104.68%.
The entrepreneurs also demanded the intervention of the finance minister to reduce VAT on all types of yarn, to Tk3 per kg, considering the overall situation.