Bangladesh’s garment sector has strongly called for strategic fiscal reforms in the upcoming FY2025-26 national budget as the new fiscal year draws near. The industry continues to show resilience in the face of a difficult global market and a recent decline in export numbers, underscoring the need for legislative assistance to maintain momentum and ensure long-term growth.
The country’s apparel exports reached over US $ 36 billion in FY2023-24, reaffirming the sector’s vital role in Bangladesh’s economy. However, total apparel exports dropped by 5.22 per cent from the previous year, underscoring the impact of persistent challenges. Encouragingly, in the first nine months of FY2024-25, the industry rebounded, recording a 10.84 per cent year-on-year growth with export earnings of US $ 30.25 billion. Still, rising raw material costs, continued labor unrest, and energy shortages have significantly hampered production, reportedly reducing operational capacity by nearly 50 per cent and straining the industry’s ability to meet growing global demand.
Adding to the uncertainty are newly imposed US tariffs of up to 37 per cent on Bangladeshi products, which, although temporarily suspended until 8th July 2025, pose a substantial threat. The US remains a key market, accounting for more than 18 per cent of Bangladesh’s apparel exports. While analysts suggest the sector’s focus on basic, less price-sensitive garments may cushion the long-term impact, the short-term risks are undeniable.
In light of these pressing challenges, apparel industry leaders are advocating for comprehensive fiscal measures in the upcoming budget. Among their key demands is a full exemption of VAT on goods and services integral to garment production and export, including backward linkage industries such as subcontracting, printing, courier, and consultancy services. They argue that such tax relief would ease production costs and improve the industry’s global competitiveness.
There is also growing momentum behind sustainability-focused reforms. Stakeholders are urging the government to scrap VAT on recycled fiber and textile waste, known locally as jhut, to support circular economy initiatives and bolster the competitiveness of small and medium-sized enterprises. Additionally, the removal of duties and taxes on man-made fibers and specialized machinery is being pushed to facilitate the industry’s diversification into higher-value products, such as sportswear and technical garments.
Another major concern is the current tax structure. Industry insiders recommend that the existing sector-specific corporate tax rate of 12 per cent and the 10 per cent rate for green factories be uniformly applied across all income sources, including incidental earnings, to ensure a level playing field. Furthermore, with Bangladesh on the verge of graduating from the WTO’s Least Developed Country (LDC) status, garment exporters are calling for an extension of cash incentives beyond June 2025. They believe such incentives must continue until at least June 2026 to protect export momentum and mitigate any adverse effects of LDC graduation.
The sector is also pressing for reform of penalty provisions under the Customs Act, especially concerning HS code classification errors. Stakeholders argue that current penalties are excessively punitive and call for a more rational and assessable system that would reduce the compliance burden on importers. At the same time, they seek reduced import duties on key capital equipment such as racking systems, dehumidifiers, solar panels, and eco-friendly chemicals, critical for maintaining environmental compliance and operational efficiency.
As the Government finalises its budget for FY2025-26, the apparel industry urges policymakers to act decisively. Without timely support, they warn, the gains achieved over decades of export-driven growth may be at risk.
