BGMEA wants source tax to be slashed to 0.50% in upcoming budget

The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) has demanded the source tax on apparel sector be reduced to 0.50% from 1% in the upcoming fiscal year budget 2023-24. 

At the same time, the apparel exporters also demanded 10% cash incentives on non-cotton product exports to encourage exporters towards diversification.

BGMEA President Faruqe Hassan made the request at a press conference at their Uttara office on Thursday (11 May).

"If the government makes the tax at source at 0.5%, then, entrepreneurs can confidently undertake mid-term business and investment plans," Faruque Hassan said.

The tax at source on the RMG sector was increased to 1% from the previous 0.5% in the previous fiscal year.

The government imposed the source tax on exports for the first time in 2005. Initially, the rate was 0.25%. Later, it was raised at different times and was set at 1% in fiscal 2014-15.

For the last few years, the government had been levying 0.5% source tax on export earnings considering the pandemic situation.

More than 80% of Bangladesh's export income comes from the readymade garment sector alone. Accordingly, entrepreneurs in this sector become the most vocal against attempts to hike the source tax on exports.

RMG exports reached $38.57 billion during the July-April of 2022-23 fiscal year, reflecting a 9.09% increase compared to the same period in the previous fiscal year, according to the Export Promotion Bureau (EPB). 

In April, however, the country's RMG exports observed a significant decline of 15.48%, amounting to $3.32 billion compared to April 2022.

Meanwhile, the textile and apparel industry in the country incurred losses, and many players saw lower profits in the January-March quarter of the current fiscal owing to energy shortage, strong dollar and a slowdown in global market demand caused by the Russia-Ukraine war.

The industry entrepreneurs said the dollar shortage affected the local textile industry as most of them are not able to open letters of credit (LC) for the import of raw cotton despite it becoming cheaper in the global market, affecting apparel prices.

As a result of a fall in demand for textile and apparel finished goods and a rise in production cost, the country's listed companies in this sector saw a sharp fall in profit during the first quarter, according to the data of the Dhaka Stock Exchange (DSE).

On a positive note, Bangladesh's apparel export to the nontraditional market increased by 34.74% year-on-year to $6.44 billion in the first three quarters of (July-March) of FY2022-23, according to the EPB data.

Among the major non-traditional markets, RMG exports to Japan, India, and Australian markets grew 43.79% to $1.22 billion, 58.38% to $830.51 million, 42.22% to $889.88 million year-on-year respectively. 

RMG export to the nontraditional markets of Brazil, South Korea and the United Arab Emirates markets also increased 73.15% to $127.88 million, 34.69% to $449.55 million and 15.77% to $230.43 million year-on-year growth respectively.