Smart tech reduces bond misuse, to save Tk10,000cr this FY

The much-discussed misuse of bond facility is on a downtrend thanks to the use of digital tech which is expected to cut Tk10,000 crore in import duty concessions for raw materials used in export sectors.

Digitalisation has helped close monitoring of duty-free imports of raw materials and their actual use in export industries, enabling revenue officials to verify more accurately the export, import and usage data collected from banks and other agencies, officials at the National Board of Revenue (NBR) have said.

Local industries have long been complaining that the bond facility is being misused and some export industries are importing more raw materials they need and selling those in the market, thus harming local business and evading tax.

They said in previous years, there was a gap of approximately 26% between the raw materials imported under the bonded warehouse facility exclusively for export sectors and the actual exports of goods manufactured using those materials.

The gap has dipped below 17% in the first nine months of the current fiscal year, according to a report from the customs department. This represents a reduction of approximately nine percentage points, indicating a decrease in the misuse of bond facilities.

In the fiscal 2021-22, the government provided slightly over Tk1.11 lakh crore in tax concessions on raw material imports under the bond facility, according to the NBR.

The customs authority expects that checking the misuse of the bond facility will result in saving approximately Tk10,000 crore in the current financial year. Also, they are optimistic that this trend will continue in the upcoming years.

According to sources at the NBR, the reduction in the misuse of the bond facility is expected to lead to an increase in revenue collection.

NBR's steps

Hossain Ahmed, member (customs, export, bond, and IT), told The Business Standard, "Instead of looking for physical traffic based on intelligence information, manufacturers are being monitored in a minimally intrusive manner through risk management using information technology. As a result, the scope for irregularities has reduced."

Explaining these monitoring efforts, he said, "Through ASYCUDA world software, the proper utilisation of imported raw materials by suspected manufacturers is being directly monitored."

Customs officials monitor the cutting of imported fabrics using Internet Protocol (IP) cameras. Detailed profiles of suspected companies are uploaded on the Bond Commissioner's website, which can be easily used for audits, he added.

The NBR has started these activities gradually since the beginning of 2022.

According to NBR officials, a system has been adopted to get export related information directly online from the website of the Bangladesh Bank. Moreover, the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) is arranging to carry out an audit using utility declaration (UD) information from the website.

Assessment of imported raw materials is being done quickly by easily analysing data from the website of the Bangladesh Export Processing Zones Authority (Bepza). Customs officials can monitor the import permit given by the Bepza through the ASYCUDA system.

Apart from the ready-made garment sector, the garment accessories industry, which mainly manufactures packaging and poly products, has been accused of misusing bond facilities.

Bangladesh Garment Accessories and Packaging Manufacturers and Exporters Association President Moazzem Hossain Moti believes that the misuse of bond facilities has decreased in this sector.

"The recent initiatives of NBR are effective. As a result, fake importer-exporters are discouraged," he told TBS.

However, he believes that some companies are still engaging in irregularities, especially in Export Processing Zone (EPZ) factories.

Moti noted that, "Although our member companies have been given an import availability permit (utility permit) for 30% of their machine capacity, this rule does not apply to industries located in EPZs."

"EPZ factories receive approval from Bepza under the Import Permit (IP), which creates more opportunities for irregularities. If these irregularities in EPZ factories are stopped, then the import-export gap will be reduced to 4-5%," he added.

The readymade garment sector is the country's biggest beneficiary of bonded warehouse facilities.

Mohammad Hatem, Executive President of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), has told TBS, "The misuse of bond facilities has decreased thanks to the efforts of the Customs Bond Commissionerate, BGMEA, and BKMEA."  

However, some "crooks" are still using the signboards of the garment business to engage in irregularities. They do this by managing all parties involved, and they are still active, according to Hatem.

Efforts are paying off

According to the NBR, the gap between imported raw materials and exports has been decreasing since July last year. In the first nine months of the current fiscal year, around 54.22 lakh tonnes of raw materials and accessories have been imported under the bond facility, and a little over 45.16 lakh tonnes of manufactured goods have been exported.

According to the data, Bangladesh's overall exports grew by more than 11%, and clothing exports grew by about 16% in the six months from July to December last year. However, the import of accessories and chemical products, apart from clothing raw materials, has not increased but instead decreased during this period.

Impacts of misuse of bond facility

When manufacturers misuse the bond facility by importing raw materials without exporting finished goods, the government loses out on the customs duties and taxes that it could have collected. Moreover, there have been allegations that some importers have sold goods imported through duty benefits in the local market illegally. This illegal trade undermines the competitiveness of local manufacturers. According to an NBR official involved in the matter, reducing the misuse of the bond facility can help the government increase its revenue collection.

The bond facility is meant to encourage exports by making it easier for manufacturers to import raw materials. When the facility is misused, it undermines this goal. By reducing the misuse, there can be a boost to exports as there are chances that more finished goods will be exported.

Misuse of the bond facility can give an unfair advantage to manufacturers who are not following the rules. By reducing the misuse, there can be a level playing field for all manufacturers.

Who gets bond facility

The bond facility is available to most exporters in the country, with 100% export-oriented companies having the opportunity to import raw materials and accessories duty-free. To take advantage of this facility, companies are required to store their raw materials in customs-approved warehouses and export the finished goods after manufacturing. This arrangement is commonly referred to as a bonded warehouse facility.

Manufacturers are not permitted to sell the raw materials or finished products made from raw materials imported under the bond facility in the local market without paying taxes. For instance, the tax rate for garments, a major export commodity in the country, ranges from 50-89% for local sales.

How much money is lost?

There is no concrete study of how much money is lost from the misuse of bonded facilities. However, a former NBR chairman Md Nojibur Rahman had commented that the financial cost of this misuse would be more than Tk50,000 crore annually during his tenure around six years ago.