Bangladesh garment makers resent budget proposal to hike tax at source

The Bangladesh Finance Minister AMA Muhith presented the national budget before parliament on 4 June for the fiscal year 2015-16. Its size – in terms of aggregate government expenditure – reflects about a 23 per cent rise over that of the revised budget estimates for 2014-15. It is also 56.8% higher than the actual figure for 2013-14.

The budget has allocated Taka 970 billion for funding the Annual Development Programme (ADP), marking an increase of Taka 22 billion over the revised ADP of Taka 750 billion for the outgoing fiscal.

For the textile and garment industry, the government has proposed to raise the tax at source for the RMG sector and other export oriented exporters to 1% for the fiscal year 2015-16. Currently, the apparel makers pay 0.30% tax at source, while the other export-oriented sectors pay 0.60%.

In his budget speech the finance minister said, “Considering special circumstances before presenting the Finance Bill last year, the tax rates on export proceeds of readymade garments and all other export items was reduced to 0.30 percent and 0.60 percent respectively. The textile and garments industry including other export items are enjoying various incentives. The aforementioned tax benefits were all owed for just one year. 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. I would also propose to consider this tax deduction at source (TDS) as final tax liability for all export sectors.”

Leading garment exporters have opposed the tax proposal. At a press conference at BGMEA headquarters, four leading organizations have demanded to abate the tax at source on garment export. They are Bangladesh Garment Manufacturers and Exporters Association (BGMEA), Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), Bangladesh Textile Mills Association (BTMA), Bangladesh Garments Accessories and Packing Manufacturers and Exporters Association (BGAPMEA).

President of BGMEA, Atiqul Islam on the behalf of the four trade bodies said that,” the budget is business friendly but not textile friendly and textile and garment sector would be the worst victim of this rise of tax at source”.

He also added if the government retains the 0.3 percent rate, the garment and textile sector would be able to contribute more to the economy of Bangladesh.

However, Center for Policy Dialogue, a non-government research organization – has appreciated the decision of the government.

Atiqul Islam also pointed that garment sector was facing the problem of image crisis after the incident of TAZREEN Garment and RANA Plaza. Millions of dollars is being invested for the repair and safety assurance in this regard. So sudden tax hike at source is completely illogical and it would affect the future of this sector.

For the development of textile industry, the finance minister said, “Apparel sector is our main export sector. This sector has been contributing considerably to our national economy for the last three decades through creation of employment and earning of foreign exchange. Although apparel sector has gone a long way as a result of concerted effort from both government and the entrepreneurs, recently this sector is under tremendous pressure on security and safety compliance issues from the buyers. I propose to exempt custom duty in excess of 5 percent and full of VAT on the imports of fire extinguishing equipment, energy efficient electrical items. Considering the demands from the textile sector, I propose to include the imports of Busbar Trunking System in the capital machinery SRO for a concessionary duty rate and exempt all duties on flax fibre, being an important raw material of textile industries.”

A Memorandum of Understanding has been signed with a Chinese investment company to establish a garments industry park at Munshigonj. This industrial park will accommodate 500 garments factories and create employment opportunities for 3 lakh workers.