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What is cash incentives on exports

  • Published at 09:42 pm June 17th, 2019
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In an effort to diversify products, the government has been providing cash incentives to promote emerging and new sectors having export potential

Cash incentives are given to selected export sectors in order to encourage exports in accordance with the export-led economic growth strategy of the country. 

The sectors to enjoy such cash incentives and the respective rates to be provided are updated every year through circulars issued by the Bangladesh Bank.

In addition, incentive is also aimed at encouraging backward linkages and using indigenous raw materials instead of imported materials especially export-oriented readymade garment industries. 

It is to be noted that such cash incentives are provided only for those exporters who do not avail the bonded warehousing facility or the duty drawback facility.

The central bank also has provisions for appointment of firms to conduct audits of cases of cash incentives. 

In August last year, the Bangladesh Bank in a circular included nine new export products ----pharmaceuticals, photo voltaic, motorcycles, chemical products including chlorine, hydrochloric acid, caustic soda, hydrogen peroxide, razors and razor blades, ceramics, hats,  fish - crabs and eel, galvanized sheet/coils (coated with zinc, aluminium and zinc and colour). The products will get 10% cash incentives against their export receipts.

With the new inclusion, the number of incentive-eligible categories of products stands at 35.  For the outgoing fiscal year, the government kept an allocation of Tk4,000 crore as cash incentives for the export-oriented sector.   

As per the latest circular of BB, the eligibility for getting cash incentive on a product the local value addition has to be minimum 30% and exporters who are manufacturing products in the special economic zones would not be entitled for incentives. 

Meanwhile, the value addition for the apparel sector is 20% for getting incentives.

Why cash incentives are needed

In an effort to diversify products, the government has been providing cash incentives to promote emerging and new sectors having export potential. In addition, it provides the fiscal incentives to large industrial sectors like the apparel industry.

“In diversifying export products, the government has been promoting potential and emerging sectors. As part of the initiative, we have announced the provision of 10% cash incentives for nine new products,” former Commerce Minister Tofail Ahmed told Dhaka Tribune.

As a result, export earnings are expected to be bigger in future, and investment in the sectors would be encouraged to a great extent, he added.

“Cash incentive is a way of promoting exports, especially the potential and underprivileged ones. In Bangladesh, the RMG sector contributes over 83% of the national exports. While leather, the second highest export earner, earns nearly one billion US dollar per annum,” former caretaker government finance adviser AB Mirza Md Azizul Islam told Dhaka Tribune.

To encourage product diversification, a cash incentive is a tool to help manufacturers remain competitive in the global market, said Islam.

He said businesses would be interested to invest more in the newly included sector as the incentive works as a booster.

How cash incentives is disbursed

After realization of export money from the importer, an exporter has to apply for the cash incentive to the bank and the bank will then conduct an audit of the firm. After the audit, the firm will place a certificate to a branch of the bank and the branch will forward it to the bank's head office.  

Receiving the certificate, the bank places it to the Bangladesh Bank and the central bank disburses the incentives in four quarters to the exporters at a rate as declared. 

RMG sector to enjoy more in incentives from next fiscal

In the proposed budget for the FY20, the government proposed 1% cash incentive against exports of apparel goods to traditional export destinations and allocated Tk2,825 crore for this. 

At present, apparel makers enjoys 4% cash incentives in non-traditional export markets.