RMG source tax likely to double

Apparel exporters may enjoy the existing corporate tax rate for two more fiscal years, but tax at source may double to 0.5 percent in the budget for fiscal year 2020-21, said a finance ministry source.

The country's apparel exporters are currently paying a 10 percent corporate tax for green factories and 12 percent for others, a situation they would like to remain unchanged for the next five years.

They are also paying 0.25 percent tax at source and have demanded that this rate too stay the same for the next five years.

Although the National Board of Revenue (NBR) fixes tax at source for RMG at around 1 percent during the budget every year, apparel makers always seek political interventions to have the rate slashed.

Last year, the government ended up reducing source tax from 1 percent to 0.25 percent.

Reflecting on budget proposals for the 2020-21 fiscal year, Rubana Huq, president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said all buyers had been reducing product prices.

However, she said, operating expenses of the RMG sector increased by 30 percent in the eight years between 2010 and 2018. As a result of increased costs and competition from neighbouring countries, Bangladeshi readymade garments are facing a big challenge to their survival in the business.

Besides, garment factory owners have also invested a huge amount of money for remediation and retrofitting – adding new technology or features to older systems.

In the first half of the current fiscal year, Bangladesh's apparel export was reduced by 6.21 percent against a growth target of 11.9 percent.

On the other hand, apparel exports increased by 5.85 percent in Vietnam and 5.28 percent in Pakistan.

In such circumstances, she said, it is necessary to move forward with the existing source tax remaining in place where the next budget proposals are concerned.

Apparel exporters also asked that the 5 percent income tax levied on the cash incentive provided to the RMG industry be waived in the upcoming budget to help the industry remain competitive against neighbouring countries. 

Mohammad Hatem, first vice president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said the industry needs special policy support to survive in the pandemic situation.

"Due to the Covid-19 disaster, many businesses will close down and many entrepreneurs will disappear. So, a safe exit guideline and incentives are more important for this budget," he added.

Hatem also said that for the sake of the survival of the garment industry, the government should carry on with the existing rate of source tax.