Cooling system, lift, hi-tech parks may see higher import duty

TBS Illustration

The government plans to raise the import duty on at least 13 types of machinery, including air cooler and refrigerator compressors, chillers, lifts, CCTV cameras, and prefabricated building materials from the current 1% to 10% in the upcoming budget, according to finance ministry sources.

Furthermore, investors in economic zones and hi-tech parks may confront a 1% import duty on nearly all categories of capital machinery, a departure from their current duty-free status.

Additionally, these investors may be required to cover all duties, excluding customs duty, for vehicle imports, officials from the ministry told TBS.

They say in the upcoming budget, there may be an increase in import duties for CNG conversion kits, cylinders, and related machinery. The minimum tariff value for importing switches and sockets might also rise by around 40%.

The National Board of Revenue (NBR) is also considering reducing exemptions of value-added tax (VAT), income tax, and import duty by raising tax rates for local industries manufacturing products such as refrigerators, air coolers, sugary items, etc.

Experts and industry insiders say increasing import duties on capital machinery could discourage investment in the country, thereby potentially hampering industrialisation efforts.

Dr M Masrur Reaz, chairman of Policy Exchange Bangladesh, said, "Bangladesh requires revenue and exemptions should be minimised. However, investment in the country has remained stagnant in recent years."

"During such a period, any substantial increase in import tax on capital machinery, from 1% to 10%, could deter investment. It would not be a wise decision," he added.

A senior finance ministry official, speaking on condition of anonymity, told TBS that import duties on capital machinery may rise for specific industries as part of the policy to phase out zero-duty imports.

Additionally, there are plans to remove certain capital machinery from this list and levy additional duties on them.

The official said import duties might be raised on certain products to safeguard local industries.

Sources indicate that most of the capital machinery likely to face an import duty increase is used in the textile and garment factories.

Industry owners expressed concern over the NBR's proposed move for the budget of the next fiscal year, citing potential adverse effects on industrialisation amid the sector's current challenges stemming from both domestic and international factors.

Md Saleudh Zaman Khan, vice president of the Bangladesh Textile Mills Association (BTMA), said, "If such a decision is implemented, the cost of production will rise for importers, potentially compromising our competitiveness in the global market. This could discourage industrialisation."

He explained, "We rely on importing highly advanced and costly machinery. For instance, to maintain optimal temperatures within our factories, we require imported compressors for chillers and air conditioners.

"Should the import duty escalate, numerous businesses may find it financially unfeasible to utilise such machinery, ultimately diminishing productivity."

Saleudh Zaman said, "Some machinery essential for our operations are not domestically manufactured. While it's reasonable to consider increasing duties once domestic production begins, the present circumstances aren't conducive to such adjustments."

Mohammad Hatem, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), told TBS, "Current local and global challenges have already dampened investment enthusiasm in the country. In such a climate, hiking import duties on capital machinery will escalate production costs for investors, potentially deterring further investment."

According to the Bangladesh Bureau of Statistics (BBS), industrial investment has dwindled by 1.71% in the current fiscal year compared to the preceding fiscal year 2022-23.

Despite industry investment nearing 10% of GDP in the fiscal 2021-22, it has plummeted to below 7% in the current fiscal year.

Machinery, products to face import duty hike

Currently, the import duty on compressors for air coolers and refrigerators stands at 1%, a rate that may escalate to 10% in the forthcoming budget of FY25.

Similarly, chillers, pre-fabricated building materials, lifts, and closed-circuit cameras are subject to a 1% import duty under the capital machinery category. This rate is also anticipated to increase to 10%.

Furthermore, the import duty for water purifiers may rise to 15% from the existing 10%.

The current minimum tariff value for importing switches and sockets is $6, which is projected to increase to $8 per kg. Additionally, the parts of switches and sockets may see an increase to $6 per kg from the current $4.5.

Investors in economic zones and hi-tech parks may face a 1% import duty on capital machinery, marking a shift from the current duty-free status.

Additionally, vehicles intended for use in these industrial areas will be subject to all import taxes except customs duty.

Presently, the supplementary duty on vehicle imports is up to 500%, leading to a total tax incidence of around 800% when combined with other VAT and taxes. The applicable customs duty stands at a maximum of 25%.

Furthermore, import duties on CNG conversion kits, cylinders, and other machinery may increase from 3% to 5%. Additionally, the import tax on raw materials for cashew nut processing could surge from 11% to 37.5% in the upcoming budget.

Industry insiders say if the import tax on water purifiers is raised, it could lead to price hikes at the consumer level.

Mohammad Zaved Akhtar, CEO and Managing Director of Unilever Bangladesh, which markets the water purifier Pureit in Bangladesh, told TBS, "An increase in import tax will inevitably raise our costs. The extent of this increase will hinge on our ability to absorb it and how much we might need to transfer to the consumer."