Bangladesh govt may halve leather goods export tax

The government is considering halving the source tax on leather goods exports from 1% to 0.5% in a bid to boost the sector's competitiveness.

Sources at the National Board of Revenue (NBR) said a statutory regulatory order (SRO) will be issued in this regard soon. Currently, all export products, including leather, are subject to a 1% source tax in Bangladesh.

A senior official at the NBR confirmed the development to The Business Standard, saying, "We are working on it."

Following the government's reduction of cash incentives for export products in late January, leather incentives were entirely eliminated. Now, the government is contemplating tax reductions, a decision that has been warmly received by leather goods exporters.

Tipu Sultan, managing director of Bengal Leather Complex Limited and former president of Bangladesh Finished Leather, Leathergoods and Footwear Exporters' Association told TBS, "Our sector has fallen into a dire situation after the cash incentive was abolished. If the export tax is reduced in such a situation, it will give us some breathing space."

Despite its potential, Bangladesh's leather exports have not reached their full capacity. The country struggles to gain access to certain markets due to the lack of a globally recognised Leather Working Group certificate, signifying environmentally friendly production practices. 

Additionally, existing export destinations often offer lower prices for Bangladeshi leather goods.

In the fiscal year 2022-23, Bangladesh exported leather and leather goods worth $1.25 billion, slightly down by 2% from the previous fiscal year, as reported by the Export Promotion Bureau. During this period, taxes totalling over Tk130 crore were collected on exports at a rate of 1%.

However, in the initial eight months of the fiscal year 2023-24, export earnings from these products amounted to $713 million, marking a 14% decrease compared to the same period last year. Tax revenue from this stood at over Tk75 crore.

Green factories, other sectors to enjoy lower tax rates on exports

Meanwhile, on 4 March, the NBR issued an SRO stating that export sectors with taxes below 12% could qualify for reduced tax rates upon providing evidence. 

Currently, all exports, including garments, are taxed at 1% of their value. However, companies are subject to a year-end income tax rate of 12%, except for green factories and the jute sector, which have a 10% rate. Some sectors, like those enjoying tax holidays, have even lower rates. 

Despite this, a 1% tax is uniformly applied to exports from all sectors. 

A senior official of the NBR's tax wing told TBS, "Those who are below 12% but have been paying 1% tax on exports will be able to pay tax at a lower rate (in proportion) subject to submission of proof."