Apparel exporters seek VAT waiver on sub-contracts

Highlights

• Unchanged source tax, corporate tax sought for apparel sector

• The sector wants withdrawal of 10% income tax on export incentive     

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• $5b monthly apparel export, still untapped potentials out there

• NBR assures apparel-makers of policy support to continue

Apparel exporters have urged the revenue authorities to waive value-added tax (VAT) on sub-contract manufacturing, as they said VAT on sub-contract put many such subcontracting factories in financial distress.    

The national revenue board on Thursday said it would consider the issue in the upcoming national budget for the 2022-23 fiscal year, but toned negative to wholesale policy support. Rather the revenue authorities suggested the apparel sector enhancing its capacity to face shocks stemming from graduation to developing country status in 2026.   

At a pre-budget parley with the National Board of Revenue (NBR), the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) claimed one-third of the sub-contracting factories are in trouble thanks to VAT on sub-contracting.

Currently, the export-oriented apparel units enjoy VAT waiver on products and services they purchase locally. But the sub-contracting factories whose products also end up foreign market ultimately do not qualify for the facility.

The apparel-makers sought existing source tax and corporate tax unchanged for the next five years, and withdrawal of 10% income tax on cash export incentive.

The revenue authorities realise 12% corporate tax from apparel-makers, while the rate is 10% for green factories.

But the BGMEA told the NBR that apparel factories have to pay as much as 30% in taxes – equal to existing corporate tax slab – since the revenue officials in assessment disallow gain of assets disposal, sub-contract income and other expenses.

BGMEA President Faruque Hassan told the NBR that apparel entrepreneurs are in pressure stemming from post-Covid market competitiveness.

"We are now enjoying the business benefits as we fought the pandemic better compared to many countries. The export outlook is brighter than the pre-pandemic times," said Faruque Hassan.

He said monthly apparel export now hovers around $5 billion and there are still potentials to increase the amount.

 NBR opposes blanket facilities

The BGMEA put forward a slew of demands including easing harmonized system code (HS code) related issues in external trades, reduced tax on machinery and equipment import for factories, not fining apparel manufacturers in case of weight mismatches of imported items and easing correction for typing mistakes in bill of export and shipping bill.

NBR Chairman Abu Hena Md Rahmatul Muneem said they also want apparel raw material import and fabric export to be easier.

But he said the external trade easing up must not be wholesale. "There might be misuses if we loosen the grip too much."

"Western orders are now pouring in thanks to facilities the government had provided you to cushion Covid fallout," he told the apparel exporters.