B’desh fabric manufacturers worried over proposed tax on yarn & machinery

by Apparel Resources

21-June-2019  |  4 mins read

Textile Mill
Image Courtesy: myhomedesign

Bangladesh’s rise in the global apparel export market is simply legendary! Starting manufacturing garments in the late 70s, the country today is the second biggest exporter of readymade garments worldwide, after China.

Despite the promising growth, Bangladesh is still struggling with a few inherent challenges, foremost of which is perhaps the lack of self-sufficiency in terms of raw materials, especially fabric production. Lead time becoming the vital factor behind success and failure in global apparel business in today’s age of fast fashion manufacturers in Bangladesh is hamstrung still due to their dependence on countries like India, China and Pakistan for fabrics.

In such a scenario, one would expect textile manufacturers getting precedence, which has been happening as well in the recent years. However, the Government’s recent move to add 5 per cent advance tax (AT) on textile machinery and raw materials and 5 per cent value-added tax (VAT) on yarn in the proposed budget for fiscal 2019-2020 has not gone down well with the industry, which feels it could prove detrimental to future growth.

The Bangladesh Textile Mills Association (BTMA) per se called upon the Government to rethink its move as the proposed taxes would discourage investment in the sector, and halt expansion of textile mills in the country.

It may be mentioned here that the draft budget has imposed a 5 per cent AT on some raw materials used in textile mills such as polyester, tencel fibre and viscose, besides proposing similar tax on import of textile machinery and spare parts.

“The Government wants to increase investment in the industrial sector. But the budget has proposed to impose 5 per cent AT on textile machinery, which would make investment expensive and non-profitable. As a result, investment would be hindered and entrepreneurs will be discouraged to make new investment or go for expansion,” underlined BTMA President Mohammad Ali Khokon, adding, “Considering the present context of the sector, we are requesting the Government to withdraw the AT on machinery and spare parts to encourage investment in the basic industrial sector and ensure the survival of the industrialists.”

Currently, import of textile machinery is subject to only 1 per cent customs duty while manufacturers pay Taka 3/kg of yarn in the form of VAT.

As per the BTMA data, from 2014 to 2018, local entrepreneurs invested on average of Taka 1,380 crore per year in the primary textile sector.

Lately, local yarn manufacturers have allegedly been facing various problems due to illegal import of yarn and, imposition of VAT would further increase the prices of yarn.

“As a result, fabrics manufacturers would not be interested to buy local yarn…If the Government implements the proposed 5 per cent VAT on yarn, a manufacturer would have to pay an additional amount between Taka 9.40 and Taka 23.50 for each kilogram of yarn. Hence, considering the present context of the industry, we are requesting the Government to keep the yarn out of VAT net or set the VAT amount at Taka 4 for per kg yarn,” pleaded the BTMA President.

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