The National Board of Revenue (NBR) has declared that subcontracting laws will be relaxed to boost exports and foster a more favourable economic climate for Bangladesh’s non-readymade garment (non-RMG) sectors, particularly leather and footwear.
In a recent notification, the NBR announced that non-RMG firms, particularly those having bonded warehouse permits, can now subcontract with other manufacturers. This regulatory reform intends to assure timely deliveries and enhance export orders, responding to the leather industry’s concerns.
Historically, subcontracting was permitted in all export-oriented sectors; however, earlier government laws restricted this privilege to the RMG sector. This ban had a substantial impact on non-RMG sectors, particularly leather exporters, who struggled to acquire fresh orders without subcontracting possibilities.
The latest NBR notification also included new provisions for subcontractors involved in legal issues with the NBR. These subcontractors can now handle orders using an undertaking, indenture, or letter of agreement, rather than having to submit a bank guarantee as was previously required.
Furthermore, all industrial activities must be compliant with the Contract Act of 1872. When working in export processing zones or economic zones, both contracting manufacturers must keep their warehouse licenses current and renewed, as well as get approval from necessary authorities.
Additionally, the NBR underlines that firms with suspended warehouse licenses or Business Identification Numbers (BIN) are not permitted to subcontract. The notification includes 15 comprehensive guidelines for subcontracting production and exporting goods.
Among these is a requirement that contracts between original owners of imported materials and contract producers follow the rules of the Contract Act of 1872.
The decision to relax subcontracting regulations follows appeals from industry bodies such as the Leathergoods and Footwear Manufacturers and Exporters Association of Bangladesh (LFMEAB), which advocated for equal subcontracting privileges for the non-RMG sector, similar to those enjoyed by the RMG sector. The RMG industry currently accounts for more than 80% of the country’s export profits, with the remainder going to non-RMG sectors such as leather, footwear, and plastics.
Industry executives have praised the NBR’s move, claiming that the new restrictions will allow them to gain more orders.
However, industry stakeholders expressed disappointment with the non-RMG sector’s previous inability to participate in subcontracting arrangements, emphasising the importance of this policy change in improving operational capabilities and global competitiveness.
