Bangladesh Finance Minister AHM Mustafa Kamal on 11 June unveiled a Taka 568,000 crore National Budget in the Parliament with an ambitious target of 8.2 per cent GDP growth.
Considering the economic fallout of coronavirus, the Finance Minister proposed to continue 1 per cent additional cash incentive for apparel exports for fiscal year 2020-21 while proposing to increase source tax to 0.50 per cent from the current 0.25 per cent.
It may be mentioned here that for FY20, the source tax was initially set at 1 per cent before the Government, through a statutory regulatory order, decided to reduce the same to 0.25 per cent.
The continuance of 1 per cent additional cash incentive for apparel exports effectively means that the garment makers will continue to enjoy 5 per cent cash incentive for exports to all non-traditional export destinations. Kamal also proposed to continue corporate tax for non-green units at 12 per cent and 10 per cent for green factories, for the next two years, which were set to expire on 30 June.
In the Budget, the Finance Minister also sought to cut down import duty on products like industrial racking system and RFID tags from 25 to 15 per cent to promote RMG and textile industries. He also expressed hope that the stimulus package rolled out by the Government earlier and other incentives that are being offered to help counter the effects of COVID-19 will aid the garment manufacturing sector of the country to make a rebound.
The Minister also proposed VAT waiver on masks and PPE, which have gained popularity in terms of exports from Bangladesh in last few months since the global outbreak of COVID-19. Besides, to promote the domestic textile sector, the Finance Minister sought to replace the existing 5 per cent ad valorem VAT on polyester, rayon and all other synthetic yarn and introduce fixed value added tax rate of Taka 6 per kg for all these products. It was also proposed to reduce VAT on all kinds of cotton yarn from Taka 4 to Taka 3/KG while also retaining the duty exemptions on imports of raw cotton.
The Finance Minister also proposed to rationalise provisions of bonded warehouse license rules so as to ensure proper utilisation of the bond facilities.
So, what do the garment manufacturers think of the budget for 2020-21.
“This is a special budget considering the circumstances,” maintained Asif Ibrahim of the Newage Group while interacting with Apparel Resources, adding, “We expected reduction on corporate taxes of listed companies and waiver of VAT on utilities for a year.”
Out of 10, Asif decided to give a 7.5 for the Budget for 2020-21, which by all accounts is pretty decent to say the least, while Fazlul Hoque, the ex-President of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) and Managing Director of Plummy Fashions Limited on his part decided to give half a point less than Asif and settle at 7 out of 10 for the proposed budget.
“The proposed budget has been as usual and more or less on the expected lines,” said Fazlul, who felt the increase in source tax – which he explained is an advance tax that the apparel manufacturers have to pay on sales and the amount of which is adjusted once payment from the buyers are received at the bank – from 0.25 to 0.50 per cent needs to be rethought considering its overall implications on the business, and more so, considering that the garment exporters have to pay a host of other taxes as well.
“We hope that the source tax will be reconsidered. Industry will try to lobby to the policymakers for reconsidering the rate,” Asif expressed hope.
However, considering that the nitty-gritties of the budget may have been hammered out sometime in the month of May before being presented in the Parliament in June, Fazlul personally feels the Government needs to wait for a few more months to gauge the dynamics that are changing rapidly both globally and at the domestic front before sitting with the industry leaders, economists and experts to decide on next course of action in the existing milieu as budget alone cannot address all the needs of the industry.
Do apparel exporters need more support?
Apparel exporters feel the Government should accommodate more measures in the proposed budget to recuperate exports and buck up job creation such that the sector can weather the looming economic storm unleashed by the pandemic. The garment makers also maintained that they get some sort of incentive from the Government every year, but the support should have been extensive this time around considering the global economic downturn.
“The budget is as usual unless some concrete steps are taken to revitalise garment exports,” said Mahmud Hasan Khan Babu, Managing Director of Rising Group, who went on to add that considering the time and the overall business situation, the garment sector deserves a reduction in source tax to 0.25 per cent and an increase in cash incentive to 2 per cent, while Shahidul Haque Mukul, Managing Director of Adams Apparels on his part underlined that the Finance Minister should have planned something big for the garment sector like announcing more cash incentive on exports to the EU and the USA, the two major export destinations, which take around 80 per cent of Bangladesh’s total garment shipment.
Fazlul thanked the Government to have come up with the Taka 5,000 crore stimulus package to help the exporters pay their workers and staff even before the industry could ask for it, but maintained that going forward many garment makers may need financial assistance, as the stimulus package was only for the months of April, May and June. But as the overall situation hasn’t improved much, financial aid might be needed by many, while Asif on his part maintained, “Stimulus package announced by the Government led by our Honourable Prime Minister is very generous and it will certainly help the manufacturing sector including RMG sector rebound. However, further support may be required depending on the global apparel demand.”
However, some exporters expressed apprehensions that the stimulus packages and measures announced by the Government could fall short of reviving exports from the fallouts of the ongoing coronavirus pandemic, adding that the Government needs to go beyond such measures if it wants to boost exports and protect jobs of thousands of workers.
But all of them maintained that the prompt implementation of the Taka 5,000 crore, Taka 20,000 crore and Taka 30,000 crore stimulus packages announced by the Government would go a long way in safeguarding export-oriented sectors, but added that cooperation from the banking sector is needed to speed up implementation of the stimulus packages.
BTMA for VAT removal on all kinds of yarn
The Bangladesh Textile Mill Association (BTMA), meanwhile, urged the Government to increase the existing alternative cash assistance from 4 per cent to 10 per cent for 6 months to compensate for the losses faced by export-oriented textile mills. The BTMA, while thanking the Government for reducing Value Added Tax (VAT) on all kinds of yarn from Taka 4 to Taka 3 per yard in the proposed national budget for fiscal year 2020-21, has demanded that it be removed altogether.
It had previously proposed waiving VAT on all kinds of yarn as the industry had lost around Taka 20,000 crore during the lockdown announced by the Government to curb the spread of COVID-19.
A fixed Taka 6 ad valorem VAT has been proposed to be imposed on man-made fibre produced yarn which the BTMA thinks will not benefit the related textile mills due to a dearth of export orders for yarn. Therefore, the organisation urged a reconsideration of the proposal and clamp a Taka 2 ad valorem VAT on every man-made fibre produced yarn.
It may be mentioned here that in order to stop unethical trading and protect the fair interests of the domestic industry, the BTMA earlier proposed changing the tariff structure of some Harmonised System (HS) coded fabric. However, the budget did not reflect the issue and that is why the BTMA has urged the authorities to reconsider the matter. Besides, BTMA also thinks a 0.5 per cent withholding tax on export prices of all types of readymade garments will be challenging for the textiles and readymade garments in their struggle to survive in the international market in the COVID-19 context, and thus, called upon the Government to fix the rate of withholding tax at the previous rate of 0.25 per cent.
BGAPMEA demands similar facilities as garment sector
Garment accessories makers have urged the Government to provide them with equal budgetary facilities as proposed for the readymade garment sector. The Bangladesh Garments Accessories and Packaging Manufacturers and Exporters Association (BGAPMEA), in its reaction to the proposed budget expressed frustration as their demands for reducing corporate tax, source tax and providing cash incentive, have not been addressed.
“Though the export-import, textile and industries policies mentioned about providing equal facilities to both direct and deemed exporters, we never get equal facilities,” said BGAPMEA President Abdul Kader Khan.
The proposed budget has reduced corporate tax to 32.5 per cent from 35 per cent whereas the tax is 10 to 12 per cent for readymade garment industry, he said.
Accessories and packaging industry contribute 15 to 18 per cent of the country’s RMG export, claimed the BGAPMEA President while underlining that the local accessories and packaging makers provide their goods to other export-oriented sectors including RMG through back to back letter of credit.
Almost all industrial sectors have received Government’s stimulus package to offset the negative impact of the coronavirus outbreak, but we did not get any support during the pandemic, he alleged.
It may be mentioned here that the Government has provided additional 1.0 per cent incentive to RMG sector which the budget has proposed to continue in the upcoming fiscal year. “But we are never entitled to get any incentive,” the BGAPMEA President claimed, adding, “There is no announcement of cash incentive in the proposed budget or no assurance for the backward linkage industry of RMG.”
He urged the Government to provide equal incentive to the accessories and packaging makers to help the sector overcome the negative impact of COVID-19 while demanding the Government to provide equal budgetary facilities to the accessories and packaging makers as given to the direct exporters, taking the sub-sector’s contribution to the export trade and economy.
The BGAPMEA, however, praised the Government for increasing the social safety net, creating employment opportunities and expanding financial support due to the COVID-19 pandemic.