RMG corporate tax likely to double

The apparel exporters may face another blow from the National Board of Revenue (NBR) as it plans to increase its corporate tax rate to up to 20% from the next fiscal year, according to sources.

This comes at a time when the Trump administration has imposed a 37% reciprocal tariff on Bangladeshi products entering the US market, effective from 9 April. As a result, some US apparel buyers have already halted their goods shipments until further notice due to this tariff hike, while some buyers are asking for discounts and cost sharing.

Seeking anonymity, a top NBR official said, "The garment sector has long been enjoying tax benefits. Due to pressure from the IMF, we need to increase revenue collection and aim to eliminate disparities in corporate tax rates across different sectors.

"Considering revenue realisation, the NBR is planning to increase the corporate tax rate for the RMG sector to 20%, with a reduced rate of 18% for green factories."

However, the official mentioned that nothing has been finalised yet. The proposal will be submitted to the finance adviser and the chief adviser. If they give consent, it will be implemented in the next budget.

Reacting to the news, BKMEA President Mohammad Hatem told TBS, "We have no idea how the bureaucrats come up with such ridiculous ideas to increase revenue instead of focusing on strengthening their capacity.

"The calculation of tax depends on profit. However, they have never adjusted our source taxes with that."

He said, "At a time when we are facing challenges in coping with the Trump administration's reciprocal tariffs, they are planning to impose additional taxes on apparel exporters.

"This could be part of a conspiracy against the Bangladesh apparel industry, aiming to relocate it to India."

Currently, the corporate tax rate for the garment sector is 12%. For green factories, this rate is 10%. 

Faruque Hassan, the former president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said, "The apparel corporate tax rates of 10% and 12% were set for the garment sector until June 2028; and investments were made based on these rates. If the tax rates are suddenly raised before 2028, it will breach the government's commitment."

He mentioned that the increase in tariff rates by the US is a major issue for the industry and India has cancelled transshipment. As a result, both shipping costs and time will rise.

"The rise in interest rates has already increased our business costs, which in turn has raised production costs. Furthermore, due to corruption and bribery, doing business is also not becoming easier."

Mashrur Reaz, founder and chairman of Bangladesh Policy Exchange, said, "There is no doubt that the NBR is doing this intending to rationalise the tax holidays to strengthen fiscal policy. However, there must be an appropriate timeline.

"This is not the right time to do that as the RMG sector is under significant pressure due to the ongoing inflation, the cost of finance, wage hikes, and the overall rise in business costs. On the other hand, the largest export markets also face high tariffs. Considering these factors, it is not the right time to make such changes."

He said, "Tax holidays and reduced rates should be phased out gradually. The government should give the sectors enjoying such facilities an appropriate timeline beforehand."