The Bangladesh Government has proposed raising the tax on ready made garment export proceeds by more than triple and garment exporters say the hike will be “disastrous” for the sector.
In a presentation before parliament to announce the national budget for the coming financial year, Finance Minister Abul Maal Abdul Muhith proposed increasing the tax at source from its existing 0.30% to 1 percent on all export items including RMG and non-RMG goods, according to New Age Bangladesh.
Prior to presenting the finance bill last year, the tax rates on export proceeds of garments were reduced to 0.30% considering special circumstances, and 0.60% for all other export items.
“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, frozen foods. I would also propose to consider this tax deduction at source (TDS) as final tax liability for all export sectors,” New Age reported Muhith as saying.
In keeping with the country’s moves toward a more sustainable sector, Muhith’s proposal included exempting customs duties in excess of 5 percent and full value added tax (VAT) for imports of fire extinguishing equipment and energy efficient electrical items.
Former Bangladesh Garment Manufacturers and Exporters Association (BGMEA) president Shafiul Islam said the proposed export tax would not be good for the country’s competitiveness.
“We still remain behind the export target due to the political turmoil and the depreciation of the euro,” Shafiul told New Age. “At the same time entrepreneurs have invested huge amount of money to make their units compliant. Under the circumstances, it will not be wise to increase the tax at source.”
Seconding the sentiment, former vice president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Mohammad Hatem said, “If the government increases tax at source at the rate of one per cent, it will mount heavy pressure on the sector’s large number of small and medium entrepreneurs who could be bankrupt.”
If the government proceeds to implement the tax hike, one of two things will happen according to Shakil Tapal, president of Synergies Home, which sources product in Bangladesh.
“The exporters will either pass the cost on to the importer or they will go back and try and squeeze their fabric supplier and their trim supplier,” Tapal said.
The tax increase could likely lead to higher FOB prices out of Bangladesh, but according to Tapal, the change is negligible for most businesses.
“Unless you’re like a Zara that’s buying 100 million units,” Tapal said, “Then you have to be worried about this charge.”