Proposed tariff adjustments: What it means for local industries

Illustration: TBS

To bolster local industries, the government has introduced a series of tariff adjustments in the proposed budget aimed at supporting domestic production by raising import duties on various products. 

To support sectors such as pharmaceuticals, wood finishings, washing plants, paints, and particle and vinyl boards, it has been proposed to reduce the duty on bulk imports of methanol from 10% to 5%. 

However, the duty on retail imports will remain unchanged at 10%. This reduction is expected to benefit local industries that rely on methanol as a key raw material.

For the textile sector, it is proposed to significantly reduce duties on polyester staple fibre (PSF) and textile-grade polyethene terephthalate (PET) chips from 15% to 1%, offering a substantial cost advantage to local manufacturers. 

To help local textile industries diversify their export basket, the government will now offer a 1% import duty on 18 types of non-cotton fibre, down from 10-31%. 

The carpet industry is also poised to benefit from the proposed halving of the duty on polypropylene yarn, reducing it to 5% from 10%. This reduction will support local factories engaged in carpet production.

Conversely, there is a proposal to increase the duty on iron and non-alloy steel wire from 10% to 15%, raising the total tax incidence from the previous 37% to 43%. This increase aims to safeguard and bolster local steel wire manufacturers.

A 5% import and 10% regulatory duty have been imposed on cashew nuts, now produced in the Chattogram Hill Tracts. Previously, under the South Asian Free Trade Area (SAFTA), the import duty was just 3%. 

This increase is expected to raise the cost of imported cashew nuts and encourage consumers to choose locally-produced alternatives.

To support the ferroalloy production sector, reducing the duty on manganese imports from 10% to 5% has been proposed, thereby lowering the total tax incidence from 37% to 31%.

Import VAT for aircraft engines and propellers is proposed to be completely waived to alleviate the burden on local airlines, facilitating fleet expansions and maintenance.

Additionally, the government has proposed a minimum price for imported compressors used in air conditioners and refrigerators, ensuring fair competition for local producers.

Industries using large chillers, particularly in the textile sector, are expected to benefit from a significant reduction in tax incidence from 104.68% to 10%, aiding in maintaining optimal humidity conditions in factories.

The import duty on water purifiers could see a rise from 10% to 15%, reflecting an effort to promote local production.

On the technology front, imported laptops are set to become cheaper with the total tax incidence reduced from 31% to 20.5%. This move is expected to make computing devices more accessible and affordable.

For items like switches and sockets, which are being manufactured domestically, the minimum price per kilogram has been increased, ensuring better market conditions for local producers.

To prevent misuse, the overall tax burden on ambulances with passenger cabin lengths exceeding nine feet stays relatively low at 31%.

The duty on pre-paid meters has also been proposed to raise from 10% to 15% to support local manufacturing efforts.

Recognising the importance of electric motors in industrial applications, particularly as intermediate goods, duties have been adjusted to favour local producers.

Lastly, the tax rebate facility for mobile phone makers has been extended until June 2026, ensuring continued support for this vital sector of the economy.

These comprehensive tariff measures reflect the government's commitment to nurturing local industries and reducing reliance on imports, thereby fostering economic growth and self-sufficiency.

End of duty waiver looms?

Private hospitals may no longer be eligible for import equipment waivers, as there is a proposal to increase the import duty for them from the current 1% to 10%.

Private power producers may face a 5% import duty instead of the current zero rate for importing materials for their plants, while other exemptions are expected to remain in place until June 2028. 

Similarly, the finance minister proposed that rental power companies and the Rampal power plant would also be subject to a 5% import duty for imports of equipment, parts, and erection materials.

He also suggested reductions in the exemptions on imports of capital machinery, construction materials, and vehicles for economic zones, along with the introduction of a 1% import duty across these sectors.

High-tech parks should also be stripped of such duty-free privilege and come under 1% import duty for imports of capital machinery, parts and construction materials. Companies inside high-tech parks should pay all taxes and duties for vehicles other than import duty, according to the budget proposal.

It has been proposed to waive additional import duties, as well as regulatory and supplementary duties, for the import of engine parts in complete knocked-down (CKD) kits to bolster the local motorcycle industry.

The government has also decided to impose 7.5% VAT on locally manufactured fridges and ACs as tax exemptions for local manufacturing sectors were revised.

VAT at source encouraged for businesses

The new budget plans to empower all individuals or businesses with annual turnover exceeding Tk10 crore to deduct VAT at source for providing dozens of services. 

Currently, only government and autonomous bodies, banks, insurance and other financial institutions, certain NGOs, and companies registered with the Registrar of Joint Stock Companies and Firms are required to deduct VAT at source.

The NBR wants more entities to deduct VAT at source during payments of 43 specified services such as hotels, motor workshops, construction firms, advertisement agencies, printing presses, land developers, furniture sales centres, couriers, consultancy and supervisory firms, IT-enabled services, human resources supply or management entities.

The step may lead to higher costs of these services.