
To support the sector and eventually lessen reliance on cotton imports, the government is reportedly considering exempting domestically produced recycled fibre and its raw materials from value-added tax (VAT), according to a source.
They further mentioned that the Bangladesh Trade and Tariff Commission (BTTC) has lately suggested a complete VAT remission for domestic producers at both the manufacturing and service stages.
When buying locally gathered fibres or clips, dealers are required to pay 7.5 per cent VAT under the current VAT system, plus an extra 15 per cent VAT at the point of sale.
In contrast, under the bond facility, imported virgin cotton is exempt from VAT.
There are currently twenty-three companies engaged in the recycling of textile waste. Based on current investment levels, their aggregate output capacity is anticipated to be 0.22 million tonnes.
An estimated 0.57 million tonnes of textile waste are generated locally, which might result in a US $ 1.0 billion reduction in the cost of importing virgin cotton.
The recycling industry is seeing a gradual increase in investment, primarily as a result of growing local demand.
Recycled polyester and synthetic fibres are among the materials that are being used more frequently in place of virgin cotton. The increasing demand from well-known brands that have made it mandatory for their products to contain recycled materials to safeguard the environment is contributing to this trend.
The European Union has mandated the use of at least 30 per cent recycled fibres in garment products from 2025. The EU has also announced higher import taxes on garments that do not comply.
By using recycled fibres as raw materials in spinning and composite mills, local producers of recycled fibre think they may lessen the nation’s reliance on cotton imports.
According to National Board of Revenue Statutory Regulatory Order (SRO) No 136, the government now exempts VAT on imports and the production of specific products and services.
Jute and cotton waste produced locally are included in this exemption. Nevertheless, for the same product garnetted stock, there is no VAT exemption during the production step.
Producers of recycled fibre are seeing an increase in production costs due to this double taxation, where VAT is paid at both the production and selling phases.
A senior official of the Ministry of Commerce said they asked the BTTC to submit a report with recommendations after a company applied for a VAT exemption for locally produced recycled fibres.
He said the ministry is currently working on the issue.