Taxes and duties take the wind out of the light engineering sector’s sail

Highlights:

Light engineering suffers from discriminatory tax regime

• Govt imposes 1% duty on import of capital machineries, but light engineering enterprises have to bear 35% in total taxes and duties in import of metallic raw materials
• Exports of light engineering products went down by half to below $30 million since 2016-17
• Annual turnover of light engineering products in the domestic market is over Tk30,000cr. Tk6,000-7,000cr is met by local manufacturers
• Around 50,000 light engineering enterprises currently employ around one million people in the country

Prime Minister Sheikh Hasina has declared 2020 as the "Light Engineering Product Year" to help -the potential sector flourish.

The government also has undertaken various long-term initiatives for the development of the industry.

Paradoxically, bureaucratic negligence and increased hassles for small enterprises now is likely to end the year as an dismal one for the sector that employs over a million people and saves billions of dollars in foreign currencies, said entrepreneurs and experts.

"When the sector was supposed to receive maximum support, it is facing an increased discrimination in taxes and duties and in terms of responsiveness from government offices," they pointed out while speaking at a seminar titled "Importance of Business Expansion for Light Engineering Products in Achieving SDG-2030" in a city hotel on Saturday.

Among various examples of discriminatory treatment they received, one instance was of an importer of lathe machines – treated as capital machineries – who pays a nominal 1% duty, while a light engineering enterprise has to bear 35% in total taxes and duties, including customs duty, advance income tax, advance tax in imports of metallic raw materials and the newly added value added tax (VAT).

"Local manufacturers are indeed struggling due to the extensive discrimination," said Dr Md Mafizur Rahman, former director general of the Bangladesh Industrial Technical Assistance Centre (Bitac).

Abdur Razzaque, president of Bangladesh Engineering Industry Owners' Association (BEIOA) said, "We've been managing the business amid the discrimination, but in the light engineering year things got even tougher due to the 15% VAT imposed in the previous fiscal."

Responding to his association's repeated requests, the National Board of Revenue (NBR) has eased the VAT policy this year. "But, it is next to impossible for a small light engineering entrepreneur to avail the VAT exemption," said Razzaque.

One needs to submit clearance from Bangladesh Economic Zones Authority, Bangladesh Investment Development Authority and the Hi Tech Park Authority before they apply to get rid of the discriminatory VAT. 

At least 55 working days of official waiting time for the VAT registration and exemption extends way further in reality, while the hassle to get access to the various officials' is another nightmare for most of the light engineering enterprises.

Mosaddeque Mahmud Rizwan, managing director of pharma and food industry machine component maker Swiss Bio hygienic, said his firm manufactures world-class metal parts in terms of health safety that have satisfied many top pharma and food brands in Bangladesh.

Swiss Bio hygienic is paying 66% total taxes and duties on imported raw material and components – directly or indirectly, while his competitors are paying a meagre 1% duty on direct imports of capital machineries, inferior ones in many cases, according to Mahmud Rizwan.

"We have been knocking the NBR for the last three years to get the discrimination addressed, but it is yet to take any step to this end. The transfer of the official concerned has made our struggle harder," he said.  

When everyone was expecting a friendlier policy for the light engineering sector, the government imposed a 10% supplementary duty on local manufacturing of bathroom fittings.

"Two of our member enterprises were preparing for exports of their bathroom fittings but the new duty is a blow for them," BEIOA president Abdur Razzaque said while talking to The Business Standard. 

Light engineering for SDG

BEIOA Adviser Mohammad Habibur Rahman, in his keynote presentation, said the sustainable development goals (SDG) includes inclusive economic growth, full time employment and a good work environment alongside policies for stable industrialisation that inspire innovation.

Light engineering, popularly dubbed as "Mother of All Industries", caters for capital machineries, components, spare parts and servicing and repairing of machines and is an ideal one to support achieving SDG.

The government came up with some special programmes like declaring it as a thrust sector in its industrial policy 2016, special development sector in 2018, announcing 15% cash incentive on export, building light engineering cluster villages, setting up laboratories and common facilities.

Exports of light engineering products, despite duty-free access to the west, halved to below $30 million since the 2016-17 fiscal year.

"In the pandemic year, the local industry if facing de-growth so far, which was growing at a 20%-25% rate in recent years," said the BEIOA president. The new policy regime appeared to have added pains, he added.

The association requested for rationalisation of taxes and duties, supporting the sector for technological, financial and market edges.  

They also said that the local market for light engineering products crossed Tk30,000 crore in annual turnover, of which at least Tk6,000-7,000 crore  worth of market demand is met by local manufacturers.

In Bangladesh, the number of light engineering enterprises has grown to around 50,000 and employs around one million people.

AHM Shafiquzzaman, additional secretary of the commerce ministry, spoke as the chief guest at the seminar.

Md Abu Naser, director of the Federation of Bangladesh Chambers of Commerce and Industries, called for administrative reforms so that no opportunity is lost.