Ministry steps in to back exports by non-bonded apparel-makers

The commerce ministry Wednesday held a meeting with the stakeholders on apparel exports through the back-to-back letter of credit (LC) without a bond licence.

"The stakeholders were positive to amend the Vat law and the Bangladesh Bank guidelines to settle the issue," said sources who were at the meeting led by Commerce Minister Tipu Munshi.      

The ministry will sit with the businessmen and public officials again on Thursday to chart the course, said the meeting sources.

They said the Wednesday meeting tasked the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) to inform how many readymade and terry towel factories do not have a bond licence, how many workers the factories have and how much the factories export.   

"We hope the laws and guidelines will be amended soon," Mohammad Hatem, senior vice-president of the Bangladesh Knitwear Manufacturer and Exporters Association (BKMEA), told The Business Standard.    

Shahadat Hossain Sohel, chairman of the Bangladesh Terry Towel & Linen Manufacturer and Exporters Association (BTTLMEA), also told TBS the same.

The revenue board in a letter on 31 August requested the Bangladesh Bank not to allow non-bonded apparel factories to enjoy back-to-back LC, saying "it contradicts the central bank's guidelines".

The revenue board move put around 500 knitwear and home textile exporters without a bond licence in a limbo. Industry people say if the back-to-back LC benefit goes, more than 500 RMG and home textile factories will no longer be able to procure raw materials and accessories from local and foreign sources on credit.

A top Bangladesh Bank official who was at the Wednesday meeting said, "The commerce ministry expressed annoyance at the revenue board letter to the central bank."

In a back-to-back LC, an importer issues an LC to an exporter and the exporter can use it as collateral to get another LC issued for sourcing raw materials and accessories on credit. If the facility goes, RMG and home textile factories will have to make full payments plus VAT in cash for local purchases, which will make their survival very difficult.

The Customs Valuation and Internal Audit Commissionerate in the report sent to the revenue board argued exporters who have availed the duty drawbacks facility or have purchased duty-free raw materials under back-to-back LC facility are not eligible for this incentive – known as alternative cash assistance – as per a central bank circular concerning the issue.

The audit commissionerate report and revenue board move stirred the businessmen — resulting in the ministry intervention to settle down the issue.