Apparel sub-contractors now to get a pie of export incentives
“Exporters can also use it [the incentive given to subcontractors] as leverage to negotiate slightly higher prices with international buyers, justifying the extra costs for subcontractors,” FBCCI administrator Md Hafizur Rahman says
The government has decided to extend special cash incentives to RMG exporters who will subcontract factories for ready-made garment (RMG) production, a benefit currently available only to exporters operating their own factories, according to finance ministry officials.
The move will allow subcontracted factories to receive a share of this 0.3% incentive through exporters, which is expected to strengthen the RMG sector – the backbone of Bangladesh's economy – by boosting its capacity to handle increased export orders due to lower US tariffs compared to competitors like China and India.
After negotiations, Bangladesh secured a reduction of US retaliatory tariffs on its goods to 20%, while India faces 50% and China 30%. Industry insiders expect this preferential treatment to drive a surge in US apparel orders for Bangladesh.
To capitalise on the opportunity, the finance ministry decided to incentivise exporters for engaging more subcontractors, following an application from Ha-Meem Group, one of the country's largest RMG exporters, and consultations with the commerce ministry, BGMEA, BKMEA, and FBCCI.
The decision is final, but a summary of the proposal is still awaiting the finance adviser's approval, officials said.
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Although subcontractors will not receive the incentive directly from the government, with exporters getting the cash benefit, they are expected to gain indirectly, business leaders said.
"Exporters can also use it [the incentive given to subcontractors] as leverage to negotiate slightly higher prices with international buyers, justifying the extra costs for subcontractors," said FBCCI administrator Md Hafizur Rahman.
Currently, subcontracted factories account for roughly 10% of Bangladesh's RMG exports, according to BGMEA. Analysts expect this share to grow further with the new government's move.
Commerce Secretary Mahbubur Rahman told TBS, "Because subcontractors don't export directly and have no bills of entry, they miss out on direct incentives. Extending the scheme to them would be a positive step."
"Even if the commerce ministry is asked to prepare a module to allow subcontractors to receive incentives directly, we will try to do it," he said.
RMG leaders welcome the initiative
Industry insiders have welcomed the government's move to extend cash incentives to subcontracted RMG factories, saying it will help smaller firms survive and contribute to boosting the country's garment exports.
Under existing rules, only exporters who have their own factory qualify for the special cash incentives, while production in other factories or through subcontracting does not.
This policy has discouraged direct exporters from subcontracting, forcing many small garment units to shut down. Some exporters engaged in subcontracting have concealed the practice by declaring output as their own to claim benefits.
FBCCI administrator Md Hafizur Rahman said, "Although the incentive will go to exporters first, subcontracting companies will benefit indirectly. Exporters can pass part of the incentive to workers' wages or other benefits, helping small factories gradually strengthen and create additional employment."
BGMEA President Mahmud Hasan Babu told TBS that he was not aware of the details, as the ministry might have discussed the matter with the organisation before he became president.
BKMEA President Mohammad Hatem said the Finance Ministry consulted BKMEA before rolling out the incentives for subcontracting companies.
"Under the scheme, the party opening the back-to-back LC will receive the incentive, but subcontractors will get a share of the benefits indirectly," he said.
He explained that many buying houses collect orders from abroad and export garments through subcontractors. Some traders without their own factories also outsource production to small units for export, but they will not be eligible for the incentive.
As the government plans to extend incentives to subcontracting firms while gradually phasing down overall rates ahead of LDC graduation, the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) has urged the Finance Ministry to increase the rate for the current fiscal year.
In FY23, the RMG sector received Tk5,696 crore in incentives.
BGMEA demands higher incentives
In a letter to the finance ministry on 11 August, the BGMEA sought an increase in various export incentive rates for the RMG sector.
The association requested raising the special cash support rate from 0.30% to 1%, the alternative cash support rate (replacing duty bond and duty drawback) from 1.5% to 2%, and the SME incentive rate from 3% to 4%.
BGMEA cited current geopolitical tensions, the Russia-Ukraine war, and US reciprocal tariffs as factors worsening the sector's crisis. Over the past year, production and supply chains were disrupted by banking instability, labour unrest, and security issues. Despite this, international garment prices fell, discouraging investment in the textile and apparel industry.
The association noted that in the first 10 months of FY25, imports of capital machinery for the textile sector fell 24.38%. Additionally, India's cancellation of transhipment facilities and restrictions on garment exports via all land ports have raised serious concerns.
RMG accounts for around 84–85% of Bangladesh's total exports.
According to BGMEA, the sector began in 1978 with just $10,000 in exports. Bangladesh Bank data shows exports reached nearly $37 billion in FY24, while EPB data indicates $40.20 billion in exports during July–April of FY25, reflecting 9.83% year-on-year growth.
