Duty benefits cut hits heavy industries hard

In the first week of June, Chairman of NR Group Nur Uddin Rubel opened a letter of credit (LC) to import two crawler cranes from Japan, expecting to pay approximately Tk10 lakh in duties as they were valued at Tk10 crore.

However, when the cranes arrived at Chattogram Port in August, Nur Uddin was informed that he would now need to pay a staggering 27% in duties and taxes (including VAT, AIT, AT) instead of the previous 1%, due to the withdrawal of duty benefits in the 2024-25 budget.

He now has to pay Tk2.7 crore to import the crawler cranes, a type of capital machinery essential for a green ship-breaking yard.

The government had withdrawn duty benefits for the local industry on importing capital machinery like cranes, lifts, conveyor belts, industrial robots and many others in the budget. On 6 June, the finance minister proposed the withdrawal of the duty benefit which parliament passed on 30 June.

This sudden policy shift, effective from 1 July, has left many entrepreneurs facing unexpectedly high import costs, hampering their ability to complete crucial industrial transformation projects.

Industry experts believe the withdrawal is likely to slow down industrial growth, especially in heavy sectors like ship-breaking, steel, and cement.

The fate of the shipbreaking industry became a cause for concern after the government ratified the Hong Kong Convention last year. The convention aims to ensure that ships, when recycled at the end of their operational lives, do not pose unnecessary risks to human health, safety, or the environment.

Talking to The Business Standard about his situation, Nur Uddin said, "I started the green transformation of my ship-breaking yard with a budget of Tk50 crore but as prices of all construction materials increased in the last two years, I exhausted my funds with 20% of the work remaining."

"Due to this, I had to secure funds from other sources and when I opened the LC, my C&F agent informed me that I would have to pay a maximum of Tk10-12 lakh as import duty.

"But now customs officials are asking for Tk2.7 crore in duty and VAT to clear the shipment," he said.

"Given the situation, I have kept my shipment pending due to a fund crisis. I was not prepared to pay the extra duty, which is also adding more costs due to container demurrage charges," he said sadly.

Nur Uddin is not the only victim of the sudden withdrawal of duty benefits on importing capital machinery. At least 10 shipbreaking yards working on green transformation have been affected by the government's decision.

Saifullah Sayed, a young entrepreneur and director of MAK Corporation, told The Business Standard that he had to pay Tk88 lakh in duties to clear a crawler crane shipment last week, despite initially expecting to pay only Tk3-4 lakh.

"I waited a few days for an amended version of the Statutory Regulatory Order (SRO). But seeing no hope of getting the benefits, I cleared the shipment by paying the unexpected cost to avoid additional demurrage charges," he added.

According to C&F agents, the customs authority has been charging a total of 27% on the LC value, including 15% VAT, 5% AIT, 5% AT, and 2% duty for importing capital machinery such as different types of cranes, industrial robots, excavators, chair-lifts, teleferics, weight scales, pneumatic elevators, conveyors, and many others.

Economists say that this decision will slow down the industrial growth of the country, which will certainly hinder the government's plan to create vast employment opportunities.

Mohammed Saiful Islam, a professor at the Department of Economics at the University of Chittagong, said the withdrawal of duty benefits will discourage entrepreneurs from starting new industrial projects.

He said while industries in economic zones still benefit from a manageable 1% duty, the 27% rate imposed on others will likely deter industrial investment, further stifling job creation at a time when the economy is already struggling.

Business community leaders and industrialists said the country's economy is already going through a crucial period, and the withdrawal of benefits is likely to deepen the crisis by hindering industrial growth.

Tapan Sengupta, deputy managing director of BSRM, said the increased investment costs could lead to a loss of profitability for industries, ultimately reducing the government's tax revenue.

"Losing profitability, entrepreneurs will be discouraged from undertaking new projects which will hamper the employment generation in the country as well," he added.

Mohammed Zahirul Islam, vice-president of the Bangladesh Ship-breakers and Recyclers Association, told The Business Standard, "The government had ratified the Hong Kong Convention in 2023. According to the convention, after June 2025, no non-compliant yards will be allowed to recycle ships.

"We have only four compliant yards in the industry now. Another 10-12 are undergoing transformation, and 10 more are in the pipeline."

"Most yard owners do not have sufficient funds to develop their yards. A few came forward with limited budgets for the transformation, however, the government's decision to withdraw duty benefits has pushed them into further trouble, discouraging other entrepreneurs from undertaking transformation projects as it requires importing several expensive pieces of capital machinery," he added.

"We have already informed the Ministry of Industries and the Ministry of Finance about the matter and requested a review of the decision," Zahirul said. He is worried that if there is no positive feedback, the industry will face significant difficulties. ***