NBR’s policy reversal jolts oceangoing shipping, $3.5b investment, $1b yearly freight at risk

A sudden policy change has shaken confidence in Bangladesh's oceangoing shipping industry, putting over $3.5 billion in private investment at risk and threatening more than $1 billion in annual foreign currency earnings from freight – money that was previously kept within the country instead of paid to foreign carriers.

The National Board of Revenue (NBR) abruptly ended VAT and tax exemptions on oceangoing vessels without any discussion with industry stakeholders, leaving vessel owners unprepared and raising serious concerns about the future sustainability of the sector.

Until mid-December last year, the government's direction was clear: incentivise the growth of a domestic fleet to reduce reliance on foreign ships and bolster foreign exchange reserves.

As part of that strategy, the NBR waived 15% VAT on ship purchases in June 2019. In a further push in 2023, it exempted taxes on freight income from Bangladesh-flagged oceangoing vessels until June 2030, to encourage private sector's investment in this sector.

But the facilities were ended on 15 December 2024, when the NBR imposed a 7.5% VAT on ship imports. Just two days later, it scrapped all freight income tax exemptions – effectively reversing a policy that had helped expand the domestic fleet from 39 vessels in mid-2019 to 101 by early 2025.

"The NBR has backtracked on its own rules by withdrawing tax benefits from this sector," said Azam J Chowdhury, chairman of the Bangladesh Oceangoing Ship Owners' Association.

He pointed to a 2023 NBR order that stated that while the Board may amend directives, it cannot impose or raise tax rates as per the order.

Chowdhury said shipowners had invested over $3.5 billion based on a long-term commitment by the government that promised tax exemptions until 2030. "This sudden, unilateral move without consultation has thrown us into serious uncertainty," he said.

"These investments were made under a clear policy framework," he told The Business Standard. "Now, with loan repayments in jeopardy, we risk destabilising what could have become the second-largest foreign currency earning sector after garments."

A growing sector at risk

The growth in the sector was more than symbolic. In 2024, Bangladesh-flagged ships earned about $1 billion in freight revenue and employed over 2,000 skilled professionals, generating an estimated $700 million in remittances, according to industry estimates.

Industry insiders said although the oceangoing shipping sector is relatively new, it is now subject to standard corporate tax rates – 20% for listed companies and 27.5% for non-listed ones. In contrast, the decades-old RMG sector pays only 12%, with green factories enjoying an even lower rate of 10%. Other sectors like textiles also benefit from reduced tax rates, while the IT industry enjoys full tax exemptions.

Additionally, the advance income tax has been raised from 1% to 5%. Although adjustable, it requires a substantial upfront payment when purchasing a vessel, which typically costs between Tk300 crore and Tk500 crore.

Additionally, a 5% income tax applies to freight earnings from outbound services and 3% for inbound services, along with a 7.5% VAT. Altogether, the effective tax burden on the sector stands at around 30%.

With the withdrawal of previous tax benefits, the total tax impact on the oceangoing shipping industry will exceed $300 million. Industry players warn that this will seriously undermine the sector's growth and may cause a contraction in investment.

"This will force us to sell our ships. Competing with global players under this tax regime is impossible," said Mostafa Kamal, chairman and managing director of Meghna Group of Industries (MGI), which owns the country's largest private fleet of 25 oceangoing ships.

Kamal, who invested over $600 million in the past five years, said such taxation does not exist in neighbouring countries. "I have shelved my plans to acquire more vessels, though global prices are now favourable." India in 2024 has extended the tax holiday for shipping companies by an additional five years, reducing the financial burden and encouraging investments in new vessels.

Industry players warn the sharpest blow will fall on companies with vessels already in the pipeline. MJL Bangladesh, for instance, has committed $151 million for three vessels – two oil tankers and one gas carrier – due for delivery by 2026.

"The cumulative financial impact on MJL due to the policy shift will be around $19 million annually – more than what the ships were projected to earn," said a senior MJL official, requesting anonymity.

Meherul Karim, CEO of SR Shipping – one of the country's largest and oldest operators – said the company has put its new vessel purchase plans on hold following the sudden withdrawal of all tax benefits for the sector.

Azam J Chowdhury also criticised the government's inaction on amending the Flag Protection Act, which reserves all government cargo transport for state-owned ships. In practice, the Bangladesh Shipping Corporation (BSC) owns less than 10% of the fleet, while private firms own the majority.

"This law denies the private sector a level playing field. You can't have two flags under one country. It goes against equality, justice, and even the constitution," he said.

Asked why the tax benefits were scrapped so abruptly, a senior official of the National Board of Revenue said the decision was based on recommendations from the International Monetary Fund, which has advised the NBR to withdraw tax exemptions for various sectors – a move reflected in the FY2025-26 budget.

$10b freight bill mostly goes abroad

Bangladesh's economy depends heavily on international trade. In FY24, imports reached $63 billion and exports $45 billion – totalling $108 billion in trade, even amid an economic slowdown. Over 90% of that trade was handled through seaports.

According to industry insiders, exporters and importers spent over $10 billion on freight in 2024, with nearly 90% of that amount paid to foreign shipping carriers. More ships under the Bangladesh flag would help keep freight payments by exporters and importers within the country, rather than sending the money to foreign carriers, shipowners said.