mobanmarketThe 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.
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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