More tax burdens on textiles, plastics, home appliances likely

Consumers, especially those with lower incomes, are bracing for significant price increases as the upcoming national budget is set to impose substantial tax burdens on the textile, plastics, and home appliances sectors, officials familiar with the matter said.

The textile industry, in particular, faces a major impending challenge. Currently, cotton imports are exempt from tax. However, the new budget proposes a 2% advance income tax (AIT) on imported raw cotton, a primary raw material for textiles.

Additionally, the value-added tax (VAT) on locally produced yarn from cotton is slated to rise from Tk3 to Tk5 per kilogram, with a similar increase expected for man-made fibre yarn.

Beyond these direct levies, the textile industry's advantageous reduced corporate tax rate is also set to be abolished. Currently benefiting from a 15% corporate tax rate, textile companies will revert to the regular rate from the fiscal 2025-26. This change means that publicly listed textile companies could face corporate tax rates of 20% to 22.5%, while non-listed companies would be subject to 27.5%.

Finance Adviser Salehuddin Ahmed is scheduled to present the national budget for 2025-26 tomorrow. 

Entrepreneurs within the textile sector argue that any increase in taxes, whether at the import stage for raw materials or as local VAT, will inevitably inflate product prices, with the cost ultimately passed on to consumers. They believe that raising taxes in the current economic climate will further undermine the industry's competitive edge.

Saleudh Zaman Khan, managing director of NZ Textiles, told TBS, "Imposing a 2% AIT on cotton imports will create additional pressure on both local and export-oriented industries. Furthermore, VAT is set to almost double. Due to AIT alone, the price of every kilogramme of yarn will increase by 5%."

He pointed out that while there might be theoretical opportunities to adjust these taxes later, in practice, it rarely happens. "There is no precedent of getting money back from the NBR [National Board of Revenue]."

Saleudh Zaman, who also serves as a vice president of the Bangladesh Textile Mills Association, added that the VAT increase would also aggravate the burden on consumers.

He highlighted a concerning disparity: AIT will be imposed on cotton imports, but not on yarn or fabric imports. This, he suggested, would encourage local weaving mills and garment factories to import yarn rather than sourcing it from local spinning mills. 

Consequently, he said, the price gap between Indian and Bangladeshi yarn could widen further.

Shamim Ahmed, president of the Bangladesh Plastic Goods Manufacturers and Exporters Association, told TBS that the VAT on all types of plastic tableware, kitchenware, home appliances, hygiene products, and toilet accessories could double from 7.5% to 15%. This increase, he warned, would lead to higher prices for plastic goods.

These plastic products, Shamim noted, are predominantly purchased by lower-income groups. He also explained that since many of these items are sold through informal channels, such as hawkers and small shops, which often do not maintain proper accounting records, they would not be able to claim VAT rebates if the rate becomes 15%. "This inability to claim rebates would directly contribute to higher product prices for consumers."

Beyond plastics, other home appliances, electronics, and toiletries may also see VAT increases, leading to higher prices and creating additional financial pressure on consumers, the association heads warned.