15% tax for textile sector to continue till 2025

The government is going to extend the existing reduced 15% corporate tax for the textile sector for another three fiscal years, subject to its compliance with some conditions, according to finance ministry officials.

Spinning, yarn dyeing, finishing, coning, fabric dyeing, printing or any other such industries will also enjoy the benefit.

But the companies must be registered under the Companies Act, and comply with all provisions of that ordinance.

If they have paid any penalty slapped by any government authorities for violation of environmental rules and regulations, that fiscal year they have to pay a regular tax rate. The extension will be effective from 1 July this year and will remain in effect until 30 June 2025.

Currently, the corporate tax rate is 30% for non-listed companies and 22.5% for the listed ones.

The government has taken the move to extend the reduced tax rate facility as part of its revenue incentive policy geared towards making this industry globally competitive, ministry officials said. 

Bangladesh has secured second position in RMG exports globally because of such support. 

And, to retain this achievement and to get expected revenue from this sector, the reduced tax rate should continue for the textile sector, they noted. 

As the statutory regulatory order to this effect will expire on 30 June this year, the new budget will propose extending the facility up to 30 June 2025.

Welcoming this move, Bangladesh Textile Mills Association (BTMA) President Mohammad Ali Khokon told The Business Standard that it is an encouraging move for the sector that is in the same league as others grappling with raw material price hikes. 

He requested that the government continue this facility till 2030 to deal with post-LDC challenges. 

Envoy Textile Chairman Kutubuddin Ahmed told TBS such an extension to the reduced tax rate is not enough. The sector's total tax burden is higher as they have to pay source tax that is not adjustable with the corporate tax. 

The textile sector requires more focus if the government wants to strengthen the backward linkage industry of the apparel sector, he also said.

The government should provide the textile sector with more facilities, such as easy access to gas and electricity connections, so they can expand their capacity and bring in new investors, Kutubuddin noted. 

At the same time, the sector should get loans at a low interest, he added. 

BGMEA former president Kutubuddin Ahmed said the apparel sector has strengthened its footprint globally, but if the textile sector fails to boost its capacity before the LDC graduation, the RMG industry might face challenges after Bangladesh's graduation to a developing nation in 2026.

VAT on wholesale of fabrics cut to 2%

In the meantime, VAT on wholesale of fabrics at the local market will be slashed to 2% from 5% from the next fiscal year, sources said.

The decision has primarily been made targeting Old Dhaka-centric fabric markets. Most of the country's wholesale fabrics are sold in the markets. Besides, there are many wholesale fabric markets in Narayanganj, Narsingdi, Pabna and Sirajganj.

Businesses complained that the current VAT rate is much higher. 

Seeking anonymity, an official at the National Board of Revenue said even though fabrics in huge quantities are being sold at the wholesale level across the country, VAT collection from this sector is not satisfactory. So, the NBR aims to increase VAT collection by cutting the rate. 

Monsoor Ahmed, chief executive officer (in-charge) at BTMA, said the VAT rate cut will give a relief to local consumers as product prices have already gone high due to hikes in raw material prices.

He also demanded that VAT on synthetic and viscose yarns be reduced in line with cotton yarns. 

Currently, the revenue board collects Tk3 in VAT on sales of 1kg cotton yarns and Tk6 for non-cotton yarns.

Abu Motaleb, director at Federation of Bangladesh Chambers of Commerce and Industry, and also general secretary of the Old Dhaka-based business platform, told TBS that profits of many wholesale traders do not even exceed 2%. 

So, if this VAT rate is reduced to 0.5% and electronic fiscal devices are provided to traders at low costs, VAT collection from wholesalers of fabrics will see success, otherwise not, he said.

There is no exact information on the number of transactions in fabric sales per month across the country. But Abu Motaleb said the Old Dhaka-centric markets have a monthly turnover of around Tk1,000 crore.