Clothing manufacturers want VAT exemption on subcontracting

The government’s revenue authority assures that Bangladesh’s major export industry is insisting on various budget demands, including VAT exemption of garment subcontracting units and resolving HS code complications.

In a pre-budget consultation on Thursday with BGMEA leaders, National Revenue Board (NBR) chairman Abu Hena Md Rahmatul Muneem, however, said it would not be possible to haphazardly simplify all the issues. of export and import requested, as many might abuse such indiscriminate measures. simplification, in particular as regards the non-taxation regime in warehouses.

He was responding to demands from leaders of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) during the meeting held in the city.

Previously, the BGMEA had made a number of demands for the upcoming fiscal year 2022-2023, which also included the simplification of import-export activities and maintaining the existing reduced withholding and corporate tax rates for next five years.

The existing withholding tax is 0.50%, while the corporate tax is 10% and 12% respectively for eco-friendly clothing factories and others.

The Garment Association in its proposal says VAT (Value Added Tax) has been collected from a third of the country’s garment factories that outsource.

Factories that do not receive enough work orders, contract out to continue operating and meet their regular costs produce goods that are exported and bring in foreign currency to the country.

“It is therefore not logical to collect VAT on subcontracting”, indicates the professional body in its presentation.

Speaking to the FE, BGMEA Vice Chairman Shahidullah Azim said some 600-700 factories are currently outsourcing and helping to generate around $5.0-6.0 billion in export revenue .

“They also create jobs for around 0.5 to 0.6 million workers,” he said, adding, “The government should remove VAT on subcontracting to help increase employment, l investment and maintaining competitiveness in the global market”.

Speaking at the meeting, BGMEA Chairman Faruque Hassan said that after going through an unprecedented difficult period over the past two years due to the covid-19 pandemic, the RMG industry of Bangladesh is recovering from the impacts but is facing a number of challenges, the second wave of the pandemic and its new variants.

“Rising prices for yarn, chemicals and other raw materials in the global supply chain have pushed up production costs in apparel manufacturing, while freight rates and transportation costs have also increased, making it difficult for the industry to maintain competitiveness in the global apparel market,” he says.

He believes that timely government policy support is of utmost importance to keep the RMG industry competitive and moving forward, especially at a time when opportunities are emerging for the sector with many challenges from the other. side.

With government support, the garment industry would be able to sustain its growth and contribute more to Bangladesh’s development, Faruque Hassan said on an optimistic note about the industry’s future.

Their other demands include exemption from VAT on goods and services purchased in local markets by export-oriented RMG industries and withdrawal of the existing 10% withholding income tax on cash incentives granted. by the government against export earnings.

The association also requests a relaxation of the provision relating to the obligatory inclusion of the harmonized system of codes in the customs license during the release of the imported raw materials within the framework of the bonded facilities.

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Michael O. Stutler