Government moves to raise tax on RMG: Factory owners react sharply

The government of Bangladesh has moved forward to raise source tax on export proceeds within all sectors, including the major foreign currency earner Ready-Made Garment, to 1.0 percent, a decision which received strong opposition from stakeholders.

Finance Minister AMA Muhith said on Thursday during his annual budget speech that the parliament proposed to raise the tax to 1.0 per cent from current fiscal year’s 0.30 per cent. “Our textile and garment industry, alongside other export items, are enjoying various incentives. I, therefore, propose to withdraw the existing facilities and as such impose one percent tax on all export items, including garments, terry towel, carton and accessories, jute and jute goods, and frozen foods,” said Mr Muhith in his speech.

One year ago the tax rate was 0.80 percent, but since then the government had reduced it to 0.30 percent in response to special circumstances created due to political unrest and challenges the export industry of the country had been experiencing. Mr Muhith did not elaborate the reasons behind his proposal to raise the tax other than saying country’s export sector are enjoying various incentives. However, the exporters have greeted the proposal with strong opposition and urged the government to keep the rate at present 0.30 per cent as the export industry is passing through a crucial period powered by Euro’s massive devaluation against Bangladesh Taka, impact of recent political turmoil, and garment sector’s struggle to comply with workplace safety requirements.

Just after the increased tax rate was proposed, the export sector bosses in their instant reaction termed it as a big blow for the industry. “The tax rate hike will float a big blow for export sector,” said the president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA) Atiqul Islam to the local media.

A day after the proposal, the country’s three top textile manufacturing bodies BGMEA, Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) and Bangladesh Textile Mills Association (BTMA) jointly organised a media briefing to vent their anger.

The new tax rate will raise risk factor for the knit and woven sector

BTMA president Tapan Chowdhury, and BKMEA president AKM Salim Osman also spoke, among others, on the occasion. “The most affected sectors of budget proposal are export oriented apparel and textile sector. The finance minister has proposed 233 percent hike of source tax rate which will impede the normal growth of the sector,” said Mr Islam in the briefing. He said the production cost of the sector will go up due to the increased tax dipping the competitiveness in the global market.

Elaborating the reasons of losing competitiveness even after imposing only 1.0 percent tax, Mr Islam said the average profit margin of an apparel factory is between 2.0 and 3.0 percent provided there is no political unrest and any other extra expenses. “If we need to pay 1.0 percent tax, our profit margin will go down further, leading to reduced competitiveness.” “The new tax rate will raise risk factor for the knit and woven sector,” he noted. He said the cost of production have gone up nowadays with on an average a factory had to spend Tk 50 million for ensuring workplace safety in line with the requirements of Accord and Alliance, under a reform programme started after devastating incidents in Rana Plaza and Tazreen Fashions which killed hundreds and injured many.

Islam said the budget has also proposed imposition of 1.0 percent duty on the import of capital machineries, which will discourage its import. The decision needs to be revised since it may hinder product up-gradation and slow down new investment, Mr Islam said. However, country’s leading think tank the Centre for Policy Dialogue (CPD) has supported the proposal of raising source tax rate on export industry. “It’s a praiseworthy move from the perspective of revenue generation. A part of this additional revenue may be used for supporting the ongoing restructuring in the RMG sector,” CPD executive director Prof Mustafizur Rahman said at a media briefing on budget proposals.

By: Syful Islam, Dhaka