Import substitution industries in for a boost with new policy

The government is set to provide subsidies on capital investment for import-substituting industries to reduce expenditure on imports of products and raw materials.

A draft of the National Industrial Policy 2022, which is awaiting feedback from parties concerned, also proposes tax holidays and VAT exemptions, alongside a subsidy on the interest of running capital.

According to insiders, Bangladesh spent more than Tk6 lakh crore last year on importing raw materials, finished goods and food products for various industries including garments, medicines and fast-moving consumer goods (FMCGs).

The draft policy has been formulated to encourage entrepreneurs to set up industries for producing these products locally to reduce import dependency, they said.

Sheikh Faezul Amin, additional secretary (policy, law and international cooperation) at the Ministry of Industries, told The Business Standard, "We want to move away from import-dependency by becoming a producing country. That is why the government has planned to provide special assistance for import-dependent industries."

He said the draft mentions two types of assistance – cash assistance based on the capital at the time of investment, and tax and VAT exemptions.

"The policy in this regard has only been drafted and has been sent to the stakeholders for feedback. The decision will be finalised later," he said.

Although Bangladesh ranks third in the world in garment exports, entrepreneurs in the sector are mostly dependent on imports to get capital machineries.

Furthermore, around Tk53,000 crore, or 13% of the import expenditure of Bangladesh, is being spent on cotton imports only.

Sheikh Faezul Amin said the new policy aims to discourage such imports and establish substitute industries for the production of capital machinery. He also mentioned that the government is considering policy support for the production of pharmaceutical raw materials, automobile spare parts and capital machinery.

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According to sources, currently, the government is providing subsidies only for export products. Besides, there are various incentives, including 100% tax holidays, in 36 sectors such as locally-produced medicines, agro-processed goods, information technology, biotechnology, bio-fertiliser, pesticide etc. A number of industries, including electronics, home appliances and automobiles, are enjoying VAT exemptions.

If the proposed policy is finally approved, import-substituting manufacturing sectors may come under government subsidy along with incentives for the first time.

According to sources at the Ministry of Industries, the tax and duty facilities will be rationalised for raw materials import for the production of import substitutes in the new policy.

It would also consider reducing value added tax (VAT) for rural small industries, agro-products and food processing industries, eco-products and dairy industries.

The existing tax exemption facility for handicraft and cottage industries will continue.

At the same time, the amount of capital investment in these industries and the annual turnover limit will be fixed to avail this facility, sources said.

Rizwan Rahman, president of the Dhaka Chamber of Commerce and Industries, said, "The readymade garment industry has boomed in the country due to government incentives. A few other sectors – light engineering, leather and agriculture for example – also have the same potential. If the government adopts simple policies and incentives for these sectors, Bangladesh will become a hub for the production of export products."

The draft policy has also proposed to provide tax holiday facilities and depreciation benefits for setting up industries in economically-backward areas of the country.

It has identified 45 districts as backward areas, including all the districts of Rangpur, Mymensingh and Barisal divisions. Districts in Rajshahi and Khulna divisions except Pabna, Bogura and Jashore are also mentioned as backward in the policy.

The backward districts in Dhaka division include Kishoreganj, Rajbari, Gopalganj, Shariatpur, Madaripur and Faridpur. The three hill districts of Chattogram division, and Sylhet, Sunamganj and Habiganj districts of Sylhet division have also been declared as backward districts.

Sheikh Faezul Amin said, "Investors should submit their proposals to the ministry. The ministry will provide incentives that are reasonable, considering the proposals and demands of the entrepreneurs. The incentives will be given to them through the National Board of Revenue, the Bangladesh Investment Development Authority, and other agencies concerned."

The draft of the new policy has also kept the scope for re-using accreditation certificate fees or charges and the cost of insurance scheme premiums.

The Ministry of Industries initiated the new policy six years after the formulation of the National Industrial Policy in 2016.

The draft policy would be presented in the cabinet meeting for the final approval after getting reviews from the stakeholders.