NBR withdraws advance tax on imports of cotton, man-made fibres

The National Board of Revenue (NBR) has rolled back the recently imposed 2% advance income tax (AIT) on imports of cotton and man-made fibres used by Bangladesh's garment industry. This reversal comes after intense pressure from industry stakeholders.

The exemption, effective immediately, applies specifically to industrial Import Registration Certificate (IRC) holders, as per a gazette issued today (17 July). Commercial importers will not benefit from this change.

Industry pressure leads to policy reversal

The 2% AIT was introduced in the current budget, effective from 1 July, targeting over 150 imported raw materials, including cotton and man-made fibres. The NBR had projected collecting an additional Tk900 crore from these items in the fiscal year.

Illustration: TBS

However, textile mill owners swiftly demanded its withdrawal, arguing that the tax placed undue burden on an already struggling sector. They warned it could lead to the closure of spinning mills and undermine Bangladesh's export competitiveness.

Bangladesh imports approximately 99% of the cotton used in its export and domestic garment production. In 2024, the country imported 83.21 lakh bales of cotton, according to the Bangladesh Textile Mills Association (BTMA). 

Major sources include Africa (43%), India, CIS countries, Australia, and the US, with over 7% of last year's cotton imports coming from the United States. 

The AIT withdrawal applies to both man-made fibres and their raw materials such as acrylic, synthetic, nylon, polyesters, and acrylic, which are primarily imported from China.

Saleudh Zaman Khan, Vice President of BTMA and Managing Director of NZ Textile Mills Limited, welcomed the decision. He highlighted the severe impact the tax would have had, stating, "With 2% AIT, the effective tax rate for my factory would be 64%, though officially it's 27%." 

He added that Bangladesh imports around $4 billion worth of cotton and man-made fibres annually, making the industry's survival impossible if the tax had remained. "This would mean paying Tk32 crore annually just for cotton import tax. No one makes that much in a year," he explained.

The argument over AIT

NBR officials had defended the AIT, asserting it was adjustable against final profits. NBR Chairman Abdur Rahman Khan told The Business Standard, "Even if the tax is paid upfront at the import stage, firms can later adjust it if they make enough profit." Another NBR official elaborated, "If a textile firm's tax rate is 27% and it earns 10% profit in a year, that's Tk2.7 tax on every Tk100 earned. Since we're collecting Tk2 upfront, they shouldn't face problems."

However, mill owners countered that a 10% profit margin is "highly unrealistic" in the current economic climate. They also pointed out the practical difficulties in obtaining refunds or adjustments, fearing the measure would add complexity rather than ease of doing business.

Showkat Aziz Russell, President of BTMA, had previously voiced concerns to The Business Standard: "The NBR says the tax can be adjusted at the end of the year, but the process is very complex. At a time when the government is trying to simplify things, there is no logic in making it more difficult." 

He also highlighted a discrepancy: "There is tax on cotton imports, but no tax on yarn imports. This will increase the costs for our cotton importers."

NBR sources confirmed that consultations with representatives from the International Monetary Fund were held before the decision to withdraw the tax was made.