Remove bond inequality, non-RMG exporters make a point

Complicated procedures for getting bonded warehouse licence and alleged discriminatory treatment of those who avail the facility by the regulatory authorities are hurting the non-RMG exporters, holding them back from growing to their full potentials.

Non-RMG industry leaders complain that they do not get the same facility as the RMG sector, which is severely affecting their efforts to diversify the export basket, eventually hindering Bangladesh from gaining a more competitive edge in the world of exports.

Many exporters without bond licences need to pay 30%-40% duties on imported raw materials and accessories, but when it comes to getting refunds in the form of duty drawback facility, they have to go through a complex and lengthy process – it requires submission of as many as 22 documents. Only a few big companies can get duty refunds this way.

Again, there are around 4,000 bond licence holders in readymade garment, plastics, leather and garment accessories, and chemical sectors who enjoy duty-free raw material import facility.

But companies other than the RMG ones do not get equal treatment as they are deprived of at least 10 more facilities that apparel factories are entitled to.

Experts and traders say duty-free raw material import privileges should be ensured for all sectors, and it must also be consistent for all instead of being favourable to RMG alone.

Take Creation Private Limited, a jute product exporter for 24 years, for example – the company exports jute goods amounting to $8 million every year mainly to Europe and the United States. But it has to pay at least a 30% duty on imported accessories because it does not have a bond licence.

Rashedul Karim Munna, managing director of Creation Private Ltd, told The Business Standard, "We are losing competitiveness in the export market as we do not have the scope to source raw materials at a lower cost. If we get the bond facility, our exports will go up four times."

The non-bonded exporters can get a refund of duties and taxes paid on inputs and raw materials used for the manufacture of exported goods and services. 

Seeking anonymity, sources at an export association said in many cases, it takes a year or more to complete a long official process for a non-bonded exporter prior to getting duty refunds from the NBR's Duty Exemption and Drawback Office.

From getting VAT certificates to submitting export figures to a subsequent inspection of officials concerned in the factory and the bank to paying speed money to avoid delay in the process, all cost them more than half the amount they would get in refunds, he pointed out.

The process does not end here, rather it goes on for completing more paperwork, the association president added.

As a result, comparatively small exporters give up on availing the duty drawback facility, he said.

Md Abdur Razzak, president of Bangladesh Engineering Industry Owners' Association, said, "Exporters in our sector are deprived of the bonded warehouse facility. It is not possible for most of us to get duty refunds complying with all conditions and complexities."

The disparities 

On the other hand, what non-RMG exporters experience despite having access to a bonded warehouse licence does not present a happy picture either, with inequality in terms of benefits depriving them of utilising their export potential to the fullest.

The disparity starts with getting an entitlement to import inputs as they have to apply to the Customs Bond Commissionerate, which takes more time, while apparel exporters can avail the same from their respective organisations BGMEA and BKMEA, according to industry insiders. 

Moreover, RMG factories need to submit only five types of documents for auto renewal of their bond licences to the NBR, whereas others are required to submit 11 documents.

The RMG factories get 24 months to store imported raw materials in the warehouse, and later it can be extended up to six more months for special needs. In the case of others, this benefit is only for three months. Besides, the apparel sector has a scope for subcontracting, which is not allowed for other sectors, they say.

For RMG, the cut-off time for shipments of export goods is 24 hours before the departure of vessels, but for other sectors, it is 96 hours.

Dr Ahsan H Mansur, executive director at the Policy Research Institute, told TBS, "There should not be any discrimination among exporters. This is a barrier to diversification of export products."

It would not be possible for small exporters to fulfil all the conditions to obtain a bond licence facility. "There can be a central bonded warehouse system for small exporters to avail duty-free facilities."

Dr Muhammad Abdul Mazid, former NBR chairman, said to cash in on export potential of non-RMG sectors through diversifying the export basket, there should be equal opportunities for all export sectors."

However, on condition of anonymity, a commissioner of the NBR's customs department told TBS that 60% of the non-RMG companies that have been given the bond facilities could not continue business. "At first, we have to identify the reasons behind it. The cable industry in a high-tech park was also given this facility, but they could not survive."

Equal treatment could give a boost to exports

According to a recent study by Business Initiative Leading Development, the International Finance Corporation in a report revealed that Bangladesh's exports would have risen to $8.4 billion had other sectors received the same bond licence facilities as the RMG sector.

Recently, the World Bank has raised the issue of removing inequality among the sectors in this regard. 

Hartwig Schafer, vice-president of the World Bank for the South Asia region, highlighted the importance of the issue during a meeting with NBR Chairman Abu Hena Md Rahmatul Muneem during his visit to Bangladesh last December.

In a letter to the NBR Chairman On 22 December last year, he said, "As Bangladesh advances towards graduation from the LDC status in 2026, a clear strategy is urgently needed to sustain export competitiveness. NBR and World Bank teams will continue discussions on the implementation of the national single window and policy changes required to allow sectors other than the RMG one to benefit from the bonded warehouse facility."

Meanwhile, the NBR chairman at a programme recently said, "There is a tendency to misuse bond licence facilities. We are currently struggling to monitor the facility holders. For this reason, we have to be careful about giving the privilege to any new sector."

Call for equal benefits

Entrepreneurs from different sectors with the bond licence facility urged the authorities to ensure equal benefits for them like the RMG sector.

Moazzem Hossain Moti, president of Bangladesh Garments Accessories and Packaging Manufacturers and Exporters Association, said, "Although we have a bond licence facility, we do not get equal benefits like RMGs. We have to comply with more conditions, which are hindering our growth."

Shamim Ahmed, president of Bangladesh Plastic Goods Manufacturers and Exporters Association, said, "Two associations in the garment sector can issue a Utilisation Declaration (UD) certificate for raw material imports of their member factories with a bond licence. The same is not applicable in our case."

"The NBR signed a memorandum of understanding with us in 2017 to allow our organisation to issue UD for plastics exporters. However, it has not been implemented yet," he added.