Budget FY23: Source tax for export sectors rises to 1%

The government has proposed to increase source tax to 1 per cent from the existing 0.5 per cent for the ready-made garment and other export-oriented sectors in the upcoming budget for the FY2022-23.

Finance Minister AHM Mustafa Kamal announced it in parliament in his budget speech on Thursday.

He also announced to reduce tax on artificial fibre from 6 per cent to 3 per cent and proposed VAT exemption on the supply of goods under sub-contract between manufacturing units when both are enjoying the bonded facility.

However, industry insiders turned down this proposal and sought to return to 0.5 per cent of the previous level considering global inflation and production cost hike.

Kamal said, “In order to retain this achievement and to get expected revenue from this sector, the incentives granted to the textile sector need to continue. The prevailing tax rate for the textile sector stands at 15 per cent and the SRO to this effect expires on June 30, 2022.”

The minister said, “Rationalising the rate of source tax carries immense importance in formulating revenue policy. I propose to raise the rate of source tax on export proceeds to 1 per cent from that of 0.5 per cent.”

To protect the textile industry, Photosensitive Rotary Screen, Temperature Sensor and Loaded PCB Board have been included in the list of tax exemptions, he further added.

Kamal said, “In order to make readymade garment export more cost-effective, I propose to give VAT exemption on supply of goods under sub-contract between manufacturing units when both are enjoying a bonded facility.”

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Bangladesh Knitwear Manufacturers and Exporters Association Executive President Mohammad Hatem said, “Source tax increase proposal was illogical and we denied it.”

Buyers do not increase cloth prices in line with the rise in manufacturing costs. But the government collected more revenue as source tax than their target thanks to around $50 billion in export earnings in the current fiscal year, Hatem said.

“I cannot understand how the government proposed to increase source tax despite the hike in raw material prices and global high inflation,” Hatem wondered.

Hatem, however, congratulated VAT exemption for sub-contract factories.

Esrat Jahan Chowdhury, CEO of Tulika and Director of the Bangladesh Jute Goods Exporters Association, said, “Overall budget is export-oriented and business-friendly except the source tax increase proposal and jute sector corporate tax rate hike. Bangladesh is facing a foreign currency crisis which may increase further. The government should consider ways which will help us to earn more foreign currencies.”

She continued saying, “I cannot understand why the jute sector will provide source tax while it is totally environment-friendly goods and hundred per cent value addition.”

“We urge the government to exempt source tax from jute and jute goods sectors for a minimum of five years considering our negative export growth,” she added.

Shaheen Ahamed, chairman of Bangladesh Tanners Association, said that they are paying 0.5 per cent source tax. “But the government proposed to increase it to 1 per cent. It would be a burden to us as we have been suffering for a long time.”

“We urge the government to reduce it to 0.5 per cent considering the current status of the sector,” he added.

In a quick reaction, Mohammad Moazzem Hossain Moti, president of the Bangladesh Garments Accessories and Packaging Manufacturers and Exporters Association (BGAPMEA), said “If the source tax gets a final settlement, it will be enough. We will give our final reaction following a discussion with the BGMEA.”