The Bangladesh government has raised the tax at source on export proceeds of readymade garments to one per cent from existing 0.30 per cent to consider this tax deduction at source as final tax liability for the sector. Finance minister Abul Maal Abdul Muhith made the announcement on June 4 while presenting national budget for the 2015-16 financial year.
The readymade garment exporters have been quick to oppose the tax hike saying that the increase in the tax at source at the rate of one per cent would be disastrous for the sector.
In his budget speech, the finance minister proposed to impose one per cent tax on all export items including RMG and non-RMG. Muhith said that considering special circumstances before presenting the finance bill last year, the tax rates on export proceeds of readymade garments and all other export items were reduced to 0.30 per cent and 0.60 per cent respectively and the benefits were allowed for one year.
“I therefore propose to withdraw the existing facilities and as such impose one per cent tax on all export items including garments, terry towel, carton and accessories, jute and jute goods. I would also propose to consider this tax deduction at source (TDS) as final tax liability for all export sectors,” Muhith said.
He, however, exempted custom duty in excess of 5 per cent and full of VAT on the imports of fire extinguishing equipment, energy efficient electrical items for the readymade garment sector.
Md Shafiul Islam, former president of the Bangladesh Garment Manufacturers and Exporters Association, told the media that the proposal of increasing tax at source would not be congenial to the industry. “We still remain behind the export target due to the political turmoil and the depreciation of the euro. At the same time, entrepreneurs have invested huge amount of money to make their units compliant. Under the circumstances, it will not be wise to increase the tax at source,” Islam said.
“If the government increases tax at source at the rate of one per cent, it will mount heavy pressure on the sector’s large number of small and medium entrepreneurs which could be bankrupt,” Mohammad Hatem, former vice-president of the Bangladesh Knitwear Manufacturers and Exporters Association said. The proposal would be ruinous for the sector as the RMG industry had been facing challenges for global economic meltdown and political instability at home, he added.
