Govt withdraws bond facility for yarn import

The National Board of Revenue (NBR) has withdrawn the duty-free import facility for yarn – mainly used in knitwear manufacturing – to ensure transparency and accountability.

According to an NBR order issued on Monday (7 September), yarn importers will have to furnish a bank guarantee equivalent to the import value of the yarn, along with a certificate from the relevant trade association, instead of receiving the direct duty-free facility under the bonded warehouse system for yarn of 10 to 30 counts.

Cotton yarn of 10-30 counts accounts for more than 60% of Bangladesh's total yarn imports and is mainly used by knitwear manufacturers.

"An inter-ministerial government decision led to the issuance of this order," a senior NBR official told The Business Standard on condition of anonymity. "The move will ensure greater transparency and accountability in yarn imports and help reduce irregularities," he said.

Textile mill owners have welcomed the move, saying it does not mean exporters will lose duty-free access to raw materials. Rather, the new system will strengthen accountability.

Importers will be able to bring in yarn against a bank guarantee, which will be released upon proof that it was used to make products for export, they said, adding that the move will curb irregularities and help local mills compete more effectively.

However, the two leading apparel industry associations – the BGMEA and the BKMEA – have objected to the decision, saying the meeting cited as the basis for the order did not discuss or approve such a measure.

Misuse of bonded facility

Under the bonded warehouse system, export-oriented industries can import raw materials duty-free for use in making goods for export. Duties must be paid if those goods are sold in the domestic market.

Industry sources allege that some exporters have been misusing the facility by importing yarn and fabric duty-free and selling them on the local market. Large quantities of yarn also enter the domestic market through an approved wastage allowance of up to 32%.

The recent provision allowing yarn to be imported on a buyer-nominated or free-of-cost basis has further encouraged imports. As a result, manufacturers are importing large quantities instead of sourcing yarn from local mills, reducing domestic value addition.

The sector is also facing a fresh gas crisis, which has pushed up production costs. At the same time, neighbouring India, Bangladesh's largest source of imported yarn, has been providing various forms of support to its textile mill owners.

These pressures have left Bangladesh's textile industry, backed by around $22 billion in investment, increasingly vulnerable.

According to the Bangladesh Textile Mills Association (BTMA), Bangladesh imported around Tk30,000 crore ($2.5 billion) worth of yarn from the global market in fiscal 2025-26, most of it from India.

"Following this decision, a large portion of the Tk30,000 crore worth of yarn imported annually could instead be supplied by local spinning mills. This will increase domestic value addition," a senior BTMA official told TBS on condition of anonymity.

The issue is particularly important ahead of Bangladesh's graduation from the LDC category, after which the country will face stricter requirements for local value addition.

BTMA welcomes decision

The BTMA welcomed the NBR's move, describing it as a potential turning point for the struggling spinning and textile industries. It said the measure could increase local value addition and curb the misuse of bonded facilities.

The BTMA said the easy availability of bonded imported yarn had suppressed demand for locally produced 10-30-count yarn, leaving domestic spinning mills operating below capacity.

The new order is expected to shift demand towards locally produced yarn, allowing idle and partially operating mills to increase production, the BTMA said in a statement yesterday.

The move could also create employment, help banks recover stalled investments and reduce non-performing loans in the banking sector, it added.

It added that the requirement could help address the problem of unrealised export proceeds, which it estimated at around $7 billion.

"It is a timely decision that will make the local industry more competitive," said Razeeb Haider, managing director of Outpace Spinning and a former BTMA director.

He said withdrawing the facility would boost demand for locally produced yarn and increase domestic value addition across the textile and readymade garment supply chain.

"It will help Bangladesh prepare for LDC graduation, which mandates 40%-60% value addition and two-stage transformation," he told The Business Standard.

Withdrawal to strengthen competitiveness: Economists

Abdur Razzaque, chairman of Research and Policy Integration for Development (RAPID), said the textile industry is facing a severe crisis due to various factors, including the gas shortage. 

"This decision will help improve its competitiveness," he said. "The capacity of the textile sector must be strengthened if Bangladesh is to remain competitive in the long term.

However, such policy decisions should be based on research rather than being taken abruptly or on an ad hoc basis, he said. 

"When decisions are taken this way, the tendency for lobbying increases," Razzaque said, adding that the government should review the decision after a specific period.

BGMEA, BKMEA strongly oppose move

In a joint letter sent to the commerce minister on 7 September, BGMEA and BKMEA said Bangladesh's apparel industry had been built around the bonded warehouse system.

They warned that abruptly introducing new de-bonding would send a negative message to foreign buyers and could disrupt the country's garment export operations.

The associations alleged that the decision had been taken to benefit vested interests and warned that export-oriented industries would lose competitiveness as a result.

BKMEA President Mohammad Hatem said the association had already written to the NBR seeking reconsideration of the decision.