400 garment factories shut over 3 years, more at risk: BGMEA

Nearly 400 garment factories have shut down over the past three years and many more are at risk – particularly due to rising costs of doing business and a lack of business-friendly environment, according to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).

Highlights: TBS

"The country's top export-earning garment sector is going through a difficult time. Around 400 factories have closed in the past three years, and many more are in a financially vulnerable position," BGMEA said in a written statement submitted to the National Board of Revenue at a pre-budget discussion at the NBR headquarters in Agargaon of the capital today (26 April).

Rising costs of doing business and the lack of a business-friendly environment were identified as two major structural reasons behind the slowdown, according to the statement.

Institutional complexities and infrastructure limitations, along with rising financing and logistics costs, are collectively affecting the sector, reads the statement.

However, the association did not provide any data on how many new factories were registered during the same period.

When contacted, BGMEA Vice President Shehab Udduza Chowdhury said the information would be available today.

BGMEA President Mahmud Hasan Khan Babu and other apparel sector leaders attended the meeting.

They alleged widespread bribery, corruption, and harassment in NBR offices across the country, urging the NBR chairman to stop such practices as they are willing to pay any amount of tax if corruption is eliminated.

According to the Export Promotion Bureau, the country's garment export has decreased over the last eight months (August to March) compared to the previous period.

Allegations of corruption, harassment

Shahadat Hossain Sohel, chairman of the Bangladesh Terry Towel & Linen Manufacturers and Exporters Association, pointed to corruption by NBR officials and urged the authority to stop such practices.

"Please stop bribery and corruption in the tax and customs offices. We will not argue for tax or import duty reductions…. stop it. We are ready to pay whatever amount of tax you want," he urged the NBR chairman.

Echoing Sohel, Bangladesh Knitwear Manufacturers and Exporters Association President Mohammad Hatem mentioned a recent incident of Chattogram Custom House, saying, "A garment factory owner imported equipment for solar power, but officials at Chattogram Custom House have held some of the items back, although the same equipment used to be cleared before."

"Even in August last year, there was a decision by the Custom House to clear such equipment. Still, it has been held back," he added.

Speaking to The Business Standard after the event, he added, "This is nothing but harassment."

Demands from apparel sector

At the discussion, businesses placed several demands, including reducing the existing 1% source tax on exports to 0.65%, removing tax on cash incentives, lowering import duties on machinery and components required for solar panels.

The Bangladesh Textile Mills Association proposed restoring the corporate tax rate for the textile sector to 15%, reducing VAT on yarn sales for the local market from Tk5 to Tk3 per kg.

Increasing tariff rates on commercial fabric imports

The Bangladesh Garment Buying House Association proposed removing tariffs on low-weight sample imports and introducing further measures to ease doing business.

In reply, NBR Chairman Abdur Rahman Khan assured exporters that necessary steps would be taken to improve the ease of doing business.

He also said initiatives would be taken to expand the tax and VAT base to increase revenue collection, noting that certain benefits are often widely misused.

QR code system to curb VAT evasion

The NBR boss also shared plans to introduce a QR code system on packaged goods to curb value-added tax evasion and improve tax compliance.

"At the initial stage, we plan to start with tobacco products. Later, it will be implemented for all packaged goods such as soap, shampoo, bottled water, and sugary items," he said.

The system aims to strengthen monitoring in the retail market and reduce tax evasion, he said, announcing that individuals who provide information on tax evasion or misconduct would be rewarded, while offenders would face fines.

Package VAT system may return

The NBR is also considering reintroducing a package-based VAT system for small businesses.

"Those who will newly come under the VAT net will only need to pay a fixed amount. They will be able to pay it from home through any mobile financial service. No officer will need to visit them," Abdur Rahman said.

It is worth noting that a package VAT system existed in the past but was later abolished under the new VAT law, as it was considered a distortion of the standard VAT system.