For export diversification, high hopes pinned on oceangoing flag vessels

The national budget for the FY2022-23 has proposed tax exemption on foreign currency income by Bangladeshi flagged oceangoing ships until 2030 in a bid to diversify export and encourage export of services.

Finance Minister AHM Mustafa Kamal Thursday told the House that service export should be given due priority alongside goods export so that it can be established as a potential industry for earning foreign currencies.

Currently, local ships have to pay 10% tax on their incomes. Shipping industry insiders lauded the government decision, saying the policy support will be a milestone towards establishing the shipping industry as a service exporting sector with huge foreign currency earnings for the country. 

"This will be a timely move to encourage investment in the oceangoing shipping industry, which is a very potential sector," Professor Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD), told The Business Standard earlier.

He also said this is the right time to invest in the shipping industry, as the Covid-19 pandemic has led to a massive surge in freight charges.

Meanwhile, industry insiders said the initiative has been a long time coming.

"We are absolutely delighted. It has been a long-standing demand and a most necessary step for this industry," said Shahriar Jahan Rahat, deputy managing director of KSRM Group, the largest oceangoing fleet owner in the country.

"We expect the move to boost the [shipping] industry and increase the inflow of foreign remittance through this sector," he added.

According to the Mercantile Marine Department, Bangladesh currently has a fleet of 81 ocean-going vessels, with KSRM Group alone owning 23 oceangoing bulk carriers.

Besides, Meghna Group of Industries owns 16 vessels, Akij Group has 10, the state-run Bangladesh Shipping Corporations owns 8, Karnaphuli Group owns 6, and Bashundhara Group and BSA Group each own 5 vessels.

The sector has an investment of $2 billion, according to sources.

Bangladeshi businesses have to spend over $9 billion as freight charges for export and import, but local oceangoing vessels can tap into only 10-15% of it, which is less than $1 billion.

Tax cut to diversify apparel-dominated export basket

For export diversification, the finance minister also proposed a 12% tax rate for all other general industries exporting goods and services and 10% for all other green industries. The country's apparel sector, which contributes around 80% of the export earnings, has been enjoying the tax rates.    

Mustafa Kamal said the export-friendly initiatives will bring down trade deficit with other countries, and deficit in current account, a major economic indicator, will be minimised.

"The deep cut in corporate tax will ensure a level-playing field for other exporting sectors," said Abul Kashem khan, a trustee of the Business Initiative Leading Development.

He said, "It will be a groundbreaking step to diversify the export basket."

"Providing the same facilities for all export sectors is our long-standing demand to grow equally," he added.

In the meantime, Dhaka chamber former president Abul Kashem said the government should consider the common bonded warehouse facility for all exporters.