Duty hikes planned to discourage imports, boost local industries

Infographic: TBS

The government is set to increase import duties on certain products to protect domestic industries, generate employment, and reduce import bills.

The national budget for the forthcoming fiscal 2023-24 is expected to introduce import duty hikes, ranging from 10 to 15 percentage points, on a range of items including fridges, fans, LPG cylinders, lifts, and escalators, according to officials of the finance ministry.

Additionally, the government intends to exclude escalator imports from the list of capital machinery enjoying a mere 1% import duty, the officials said.

These proposed measures aim to stimulate local industries by providing them with a competitive advantage over imported goods.

High import duties to boost domestic production

By imposing higher import duties, the government seeks to incentivise investment in domestic production and manufacturing, leading to increased employment and saving foreign currency, officials said.

They also mentioned that this will make domestic industries more efficient to face post-LDC competition.

These proposals made in the draft FY24 budget were discussed in a recent meeting chaired by Finance Minister AHM Mustafa Kamal and presented at a meeting with Prime Minister Sheikh Hasina for approval last Sunday. The proposals will now be sent to the law ministry for legal review before being included in the budget before it is presented in the parliament on 1 June.

Local industry welcomes the plan

The government's move to increase import duties on certain products has been welcomed by local entrepreneurs who see it as an opportunity to expand their investments in key sectors and create more employment opportunities.

They believe this move will also enable them to strengthen their research and development efforts, positioning them for increased competitiveness in the global market following the graduation from Least Developed Country (LDC) status.

Notably, some local entrepreneurs have already achieved success by exporting these items worldwide.

Fan makers happy

Industry sources have revealed that there is a substantial demand for fans in the local market estimated at around Tk3,000 crore.

While BRB Group, RFL group, Walton Group, Jamuna, Superstar, Energy Pac, and SQ Group, are the major local manufacturers in this segment, some traders continue to import fans from countries like China, Pakistan, India, and Thailand, paying a significant import duty of 127%.

In contrast, local entrepreneurs only pay import duties ranging from 26% to 58% on the import of raw materials used in fan production.
Lifts and escalators demand growing

According to industry sources, Bangladesh has an annual demand for 4,500 units of lifts and escalators, while the current import duty stands at 15.25%.

Finance ministry officials have stated that considering the local market demand, several local companies have made investments in lift and escalator production. And the government is providing them with policy support, including a rebate rate on the import of raw materials. However, the import duty for lift and skip hoists is only 5%.

To encourage further investment in the heavy industry sector, the National Board of Revenue (NBR) has proposed an increase in the import duty for lifts and escalators to 15%.

The NBR has also suggested extending the gazette regarding the import of raw materials at a rebate rate until 30 June 2025. However, escalators are set to be excluded from this list as they are not classified as capital machinery.

Entrepreneurs have mentioned that they currently pay import duties ranging from 6% to 11% on the import of raw materials for lift and escalator production.

Electronic, white goods makers see $10b local market

A number of big electronics companies in the country have invested in the refrigerators industry as the sector sold about 26 lakh refrigerators in 2020, according to the sector data.

A study conducted by Marketing Watch Bangladesh (MWB) indicates that the country's refrigerator market has experienced remarkable growth, expanding from $131 million to $549 million in just two years.

In comparison, the import duty for raw materials used in fridge production ranges from 6% to 30%, while imported refrigerators face a 120% import duty.

Speaking with The Business Standard, Zakibur Rahman Shejan, brand manager of Walton Electrical Appliance and Lift, expressed gratitude for the government's policy support, highlighting that they have become the largest fridge manufacturer and exporter.

He said they currently export fridges, TVs, and other home appliances to over 40 countries in Asia, Africa, the Middle East, and the EU.

Shejan emphasised that the company has received an excellent response from the local market due to product quality and after-sales service.

Kamruzzaman Kamal, director (marketing) of Pran-RFL Group, stated that the local industry has the capacity to meet the annual demand for fans and fridges. The increase in import duties will encourage entrepreneurs to invest more in research and development, enabling them to compete effectively after graduation from LDC status, he added.

He also noted that previously, the lift and escalator sector was heavily reliant on imports, but now two major companies have invested in local production.

Kamal expressed hope that the proposed tariff measures will attract more entrepreneurs, making it another emerging investment opportunity.

UCB Asset Management, a new-generation investment industry firm, estimates that the market for televisions, refrigerators, washing machines, and other home appliances will quadruple in size to reach $10 billion annually by 2030. This indicates significant growth potential in the industry.

LPG cylinder makers welcome govt step

Jakaria Jalal, head of division, sales, at Bashundhara LP Gas Ltd, welcomed the government's initiative to encourage local entrepreneurs.

He mentioned that the industry requires approximately two million new cylinders annually. Almost every LP Gas company has invested in LPG cylinder manufacturing, with a combined capacity to produce around 3-4 million cylinders per year, he further added.

Imported software to be taxed

The draft FY24 budget also proposes to impose a 25% duty on the import of software.

Prof Dr Khondaker Abdullah Al Mamun, director of the Institute of Research, Innovation, Incubation and Commercialization (IRIIC) at United International University, told TBS this duty imposition will be helpful for local software companies in making expansions, creating more jobs for local talents.

On the other hand, the government may collect some revenue from imported software. 

He also mentioned that a duty hike on the import of other finished products may help local industries offer those products at competitive prices compared to imported ones.