Sweeping tariff rationalisation: Experts warn local industry may face increased competition

With Bangladesh set to graduate from the least developed country (LDC) status by November next year, and in light of the recent tariff hikes by the United States, the government has announced a sweeping reduction in import tariffs on nearly 500 items in the proposed national budget for FY26.

Experts, however, warn that this tariff rationalisation could expose domestic import-substitute industries to increased competition. 

They said while the move aims to enhance competitiveness in the post-LDC era, reduced tariffs on certain products could hurt domestic manufacturers who produce similar goods, potentially slowing down industrial growth and job creation in those sectors.

Among the goods seeing reduced tariffs are plastic products, kitchenware, toilet paper, tissue paper, and various types of fabrics. Tariffs on several readymade garments and footwear have been significantly slashed – from 45% to 40%, and duty on bricks, blocks, and tiles has been brought down from 20% to 10%.

In addition, duties on certain petroleum products, as well as on imported fish and meat, have also been lowered. 

Apart from these, a large portion of the reduced tariffs apply to less commonly imported items, which do not enter the market in significant volumes.

Professor Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue (CPD), told The Business Standard, "There was a valid argument for lowering the high import tariffs. However, this move will intensify competition for domestic industries that substitute imports."

"It's unclear whether the decision to reduce tariffs was based on adequate research and proper trade policy considerations, especially with regard to emerging industries," he added.

Import duties have been completely withdrawn on 110 products. In addition, customs duty has been reduced on 65 items, supplementary duties fully removed on 9 items, and reduced on another 442.

According to the National Board Of Revenue officials, although tariff cuts have been ongoing over the past three years, this year's budget features the largest number of reductions.

Beyond tariffs, the government has also addressed long-standing distortions in import valuation. Bangladesh currently imposes tariff values and minimum values on several hundred imported items – practices that conflict with World Trade Organization (WTO) policies.

In the proposed budget, the government has removed minimum values on 84 products, meaning these goods will now be taxed based on their actual import prices rather than a government-fixed floor price, aligning the country's tariff policy more closely with WTO standards.

These minimum values had been criticised for contradicting free trade norms and were seen as barriers to accurate valuation, the NBR officials said.

Minimum value refers to a government-fixed price used in customs assessment. Even if an item is imported at a lower price, it will not be assessed below this set value. In addition to this, several products are also subject to tariff values, predetermined rates used for calculating duties, regardless of the declared import price.

"Since Bangladesh is graduating from LDC status, such distortions in import valuation are considered inconsistent with global trade standards," said a senior official from NBR's customs wing, speaking on condition of anonymity.

"For years, businesses and economists have recommended removing tariff valuation systems like minimum and reference values," the official said, adding, "As part of the country's graduation from LDC status, import tariffs on a wide range of products have been reduced this time. As a result, the existing high protection wall around local industries will come down to some extent."

The official also clarified that despite the broad scope of tariff reductions, the overall impact on revenue will not be substantial. 

"Some tariffs, minimum values, supplementary duties, and customs duties have actually been increased in other areas. So the effect on total import revenue will likely be neutral," he said.