NBR under pressure over 2% AIT on cotton import, considers alternative relief for textile sector

The National Board of Revenue (NBR) is facing mounting pressure from textile millers to withdraw the recently imposed 2% Advance Income Tax (AIT) on cotton imports. 

But the tax authority says it cannot make an exception for cotton alone, as the levy applies to over 150 imported items, including essential goods and industrial raw materials.

Instead, the NBR is now considering alternative benefits for the textile sector to offset the impact of the tax.

Just two days ago, the Bangladesh Textile Mills Association (BTMA) held a press conference demanding the removal of the AIT on cotton imports within a week. 

Today, industry leaders met Finance Adviser Dr Salehuddin Ahmed at his office to press their case further.

Following the meeting, BTMA President Showkat Aziz Russell told reporters the government might withdraw the tax within 24 hours. "We conveyed our strong objection to the 2% AIT on cotton imports as proposed in the new budget. The adviser understood the burden this places on our industry and took note of our concerns. We are hopeful of a resolution within 24 hours," he said.

The textile sector has criticised the new budget for two key changes – the 2% AIT on cotton, the main raw material for spinning, and a 67% increase in value-added tax (VAT) on locally produced yarn, from Tk3 to Tk5 per kilogramme.

Speaking to TBS, Showkat Aziz Russell said, "The amount of tax imposed means we will be paying nearly double the actual tax we owe by the end of the year. This will tie up our working capital, which is already under pressure due to ongoing crises."

"The NBR says the tax can be adjusted at the end of the year, but the process is very complex. At a time when the government is trying to simplify things, there is no logic in making it more difficult," he said.

Russell further pointed out a discrepancy in the tax policy, saying, "There is tax on cotton imports, but no tax on yarn imports. This will increase the costs for our cotton importers."

He also mentioned that there have been discussions about alternative forms of policy support during the meeting, including the possibility of lowering gas prices for the textile industry.

"In any case, we are hopeful that a decision will be announced by Tuesday [today]," he said.

A senior finance ministry official acknowledged the dilemma. "If we withdraw AIT on cotton, other sectors affected by the same tax will demand similar treatment. So, we are exploring alternative benefits for textile millers."

The association, however, remains strongly opposed to the new taxes. In a letter to the NBR chairman on 1 July, Russell called the measures a "suicidal decision."

With $23 billion invested in the sector, industry insiders warn that rising input costs could drive garment manufacturers to source from foreign suppliers, leaving many spinning and weaving mills at risk.

"These taxes are pushing mills toward a survival crisis," Russell said. "We fear this could gradually dismantle the backbone of the country's largest export sector."

Experts note that the immediate impact of the new taxes will be a rise in the cost of locally produced yarn, making imported alternatives more attractive to garment exporters – posing a serious threat to domestic textile producers.