Rationalise import duties, boost direct tax to face post-LDC challenges: PMO

Bangladesh needs to rationalise import duties and trim para-tariffs in keeping with WTO levels to deal with post-LDC challenges successfully, a subcommittee on internal resource mobilisation and tariff rationalisation has recommended. 

The committee, which was formed by the Prime Minister's Office, made these recommendations in a workshop, presided over by Finance Secretary Fatima Yasmin, on Saturday.

To make up for revenue losses caused by such tariff rationalisation, the subcommittee also suggested boosting mobilisation from direct taxes.

The government needs to provide exporters with facilities alternative to the existing cash incentives after it graduates to a developing nation to maintain the country's competitiveness in the global market, according to a press release issued by the finance ministry. 

For this, the National Board of Revenue's policy formulation and implementation have to be separated into two functions, one of the subcommitte's study groups noted.

In 2026, Bangladesh will come out of a least developed country status. To recommend ways of facing challenges stemming from LDC graduation, the government formed a national committee headed by PM's Principal Secretary Ahmad Kaikaus.  There are seven subcommittees working under it.

In the workshop, the study group on tariff rationalisation recommended slashing import duties that have crossed WTO-bound rates for the country.

As the existing minimum value as the baseline for fixing duties is not in accordance with international practices, it should be phased out, the subcommittee said.

Jasim Uddin, president of Federation of Bangladesh Chambers of Commerce and Industries, who took part in the workshop, told The Business Standard, "Additional duties imposed on imports of various products to protect the local industry, exceeding WTO-fixed levels, should be cut to an allowable limit."

Thus, the government will face a double-trouble. On the one hand, revenue earnings from imports will fall, on the other hand, the local industry will face stiff competition, he also said.  

The overall issues were discussed in the workshop. Direct tax collection has to be increased to offset the revenue loss. That is why all put an emphasis on increasing the NBR's capacity, he noted.

According to WTO rules, Bangladesh cannot offer any cash incentives against exports if it is promoted to a developing country. On the other hand, duty-free export facilities that the country is currently enjoying will not be available. 

As a result, Bangladesh's export earnings may fall by $6.38 billion in its main five export destinations, including the European Union, according to different government studies.

According to WTO subsidy policy, Bangladesh can subsidise agricultural exports even after graduation. However, no cash incentives can be given in case of exports of industrial products.

In this situation, the subcommittee on internal resource mobilisation and tariff rationalisation recommends continuing such facilities to exporters under alternative ways to maintain the country's export competitiveness. 

In the Export Policy Order for 2021-24 issued last March, the commerce ministry made similar recommendations.

The government will adopt a specific plan on how to accommodate the existing export incentives, subsidies and other assistance in WTO-backed policies, the policy order pointed out.

According to sources concerned, India, China and Vietnam have also continued to provide such support to their export sectors under various names.

For example, India has launched a "Make in India" programme to encourage companies to develop, manufacture and assemble products in India and incentivise dedicated investments into manufacturing. Vietnam has long since introduced financial benefits in the form of industry and skills upgradation. China also provides financial support in the name of technology upgradation.

Bangladesh's main export earner, the apparel sector, currently receives cash incentives at the rate of 5%. In the 1990s, the sector had started gaining a foothold in the global market, riding on a 25% cash incentive offered by the government. 

Besides, exporters get incentives for various industrial products, including leather and leather products and jute products.

In FY22, cash incentives against exports of various goods and services amounted to Tk7,825 crore. In the current fiscal year, Tk8,300 crore has been earmarked for the purpose.

Comparing Bangladesh with some other countries that do not provide incentives for exports, the study group on subsidy, a part of the subcommittee on internal resource mobilisation and tariff rationalisation, said if there is no cash support for exports, the level of negative impact on Bangladesh will be less in the long run. 

However, withdrawal of cash incentives may reduce the export sector's competitiveness, so the study group is reviewing what alternative measures can be taken.

Md Jashim Uddin said as an alternative to cash incentives, the government can give concessions on gas and electricity bills, it also can cut taxes.

Explaining it, he said the government now gives garment exporters 5% cash incentives and alternatively, it can cut corporate tax and income tax at a similar rate. 

MA Razzaque, research director of the Policy Research Institute, told TBS that it is very difficult to find an alternative of equitable nature to the export subsidies. In this case, it should be seen how different countries are providing such a benefit to exporters within the rules of WTO.

Exempting only exporters from gas and electricity bills will be contrary to the WTO policy. Such a facility should be given to all types of industries, he said.

There is an opportunity to give incentives to exporters in the name of technology upgradation, skills development, environment protection, and renewable energy development, he noted.

Echoing him, Mostafa Abid Khan, a member at the Bangladesh Trade and Tariff Commission, told TBS that after the LDC graduation, export benefits can be offered in the form of Employment Security Fund or Industry Modernisation Fund.

"If Bangladesh enacts a law or formulates a policy to continue support in the name of industry modernisation, it should not be only for the export sector as it will be a clear violation of the WTO policy. In that case, we have to give it to other sectors as well," MA Razzaque noted.

Fazlul Hoque, Managing Director, Plummy Fashions Limited, told TBS, "We have to think about sustainable measures to maintain our export growth. For this, we need to negotiate with the EU, Canada, Australia, China, in particular for continuation of duty-free facilities."

The government can go for a bilateral free trade agreement with those countries, he said.

Farid Uddin, former member of the NBR, said it will be difficult to deal with post-LDC challenges without reforming customs, tax, and declaration management.