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Export-oriented industry demands unified, long-term tax policy

  • Published at 12:10 am June 1st, 2018
  • Last updated at 12:20 am June 1st, 2018
Experts say that a unified long-term tax policy will increase investment in the export sectorMahmud Hossain Opu
Experts say that a unified long-term tax policy will increase investment in the export sector Mahmud Hossain Opu/Dhaka Tribune

The country’s export-oriented business community wants a unified and long-term tax policy in the next budget so that it can fulfil its export potential. 

The new budget, to be announced on June 7, will lay out the fiscal policy for 2018-19. In the previous budgets, the government offered a tax rate only valid for one year – sometimes it would go up or down the following year. 

But the businesspersons think short-term tax rates hinder long-term investment planning. This is why export-oriented entrepreneurs are demanding a long-term and unified tax rate and policy for their industry.

They claim that this will increase the investment in the export sector and boost export earnings.

“Frequent changes in policy as well as in tax rate hurt the viability of the business. It leaves the people in a dilemma about making a new investment,” Mohammad Hatem, a former vice-president of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) told the Dhaka Tribune.

Whatever the policy or tax rate is, it should be long-term for a certain period. The tax rate should be rational for the growth of the export-oriented industry, he added.

A short-term policy consumes more time and money, discouraging new investment, he claimed.

In the current budget, there are several rates for the export-oriented industry. People involved with sector have dubbed it an unhealthy practice, calling for a unified rate for the sector.

The corporate tax for the garment industry is 12%, while for garment accessories, a backward linkage industry, it is 35%.

“As a backward linkage industry, garment accessories, and packaging industry is contributing over $6.7 billion to RMG exports. Besides, we are currently exporting garment accessories products directly,” Bangladesh Garment Accessories and Packaging Manufacturers and Exporters Association (BGAPMEA) president Abdul Kader Khan told the Dhaka Tribune.

The sector does not enjoy cash incentives against exports, he added, urging the government to make a unified tax rate for the sector as it is provoking uneven competition.

“As it is export-oriented and the leading export earner, the RMG sector is paying 0.7% tax at source. But, it is fluctuating and every year the figure changes which hampers investment decisions,” BGMEA Senior Vice-President Faruque Hassan told the Dhaka Tribune. 

The BGMEA demanded zero tax at source for the apparel sector in its budget proposal for the next fiscal.

Meanwhile, the business people said that every year, they submit their demands to the National Board of Revenue (NBR) but they are not reflected in the budget.

“Bangladesh export earnings is dominated by the RMG sector which contributes over 82% to overall export earnings. In diversifying the export basket and promoting the emerging sector, the government’s tax policy should be equal for all,” former adviser to caretaker government ABM Mirza Azizul Islam told the Dhaka Tribune.

Senior Economist at the Policy Research Institute Dr Ashikur Rahman said a long-term and unified tax rate is a logical demand of the business people. “Set a rate, whatever the government wants, but it should be for a certain period such as three to five years,” he added. 

This will help the business people measure costing based on it and make long-term business plans, Ashikur said. 

“In fixing corporate tax for the export-oriented industry, Bangladesh should consider the rates in countries with which it competes. Overall corporate tax is a little bit higher and I think, it could be reduced to give an incentive to the exporters,” he added.