Uniform 12% tax to diversify exports, boost competitiveness

The uniform 12 per cent corporate tax rate on non-RMG export oriented industries – proposed in the budget for FY23 – will boost competitiveness of exporters in the global market, and help Bangladesh diversify its export basket as well, say experts.

They also point out that to reap the benefits of this tax measure, the government will have to continue this policy for a certain period, offer other trade facilities, and ensure a business-friendly environment to attract more investments in non-apparel sectors.

Such initiatives will help the government tackle the challenges of LDC graduation, especially when Bangladesh loses some of its existing trade facilities.

Speaking to The Business Post, industry insiders and economists spoke in favour of continuing this tax policy for a long period of time to help the country’s non-RMG sector move forward at the same pace shown by the RMG industry.

Adding that Bangladesh’s non-RMG sector has a lot of potential in the global market, experts recommended keeping the source tax to the current level of 0.5 per cent, taking into account the skyrocketing prices of raw materials triggered by global inflation and payment delays.

Speaking to The Business Post, leather goods exporter Picard Bangladesh Ltd’s Managing Director Saiful Islam said, “Export diversification did not happen as expected to increase contribution of non-RMG sectors in the national exports.

“The new tax rate for the non-RMG sector will help to diversify the export basket. It also helped the non-apparel goods exporters to be competitive in the global export markets as they have to pay a 12 per cent corporate tax instead of 27.5 per cent.”

Islam, also the president of Metropolitan Chamber of Commerce and Industry, “A lower tax rate means that it will provide a leverage to the manufacturers to become competitive, and they will be able to offer reasonable prices to buyers to attract them to source from Bangladesh.”

To ensure strong foreign reserves and reduce trade deficit, there is no alternative to boosting the country’s export earnings. This is why non-RMG exporters are seeking uniform facilities in all export sectors – similar to the ones the RMG industry is enjoying, they added.

Addressing the issue, economist and former advisor to the caretaker government Mirza Azizul Islam said, “The uniform corporate tax rate decision is a good move, but the expected results will not come overnight.

“The investors will now show an interest to invest in non-RMG sectors, and production costs in such industries will decline slightly. But we do not know how long this policy will remain in effect. It is the most important matter to investors.”

Bangladesh Tanners Association (BTA) Chairman Md Shaheen Ahamed said, “It is a very good decision by the government. We have suffered for the last four years, but now we are nearing recovery. This decision will help us to boost exports.”

Excluding the increase in source tax and uniform corporate tax, the government has kept all other facilities unchanged to boost export earnings, including 1 to 20 per cent cash incentive for 42 export sectors and devaluation of taka against the USD by around 7.9 per cent in FY22.

In the FY22, apparel sector are enjoying 12 per cent corporate tax, while non-RMG sector are paying 30 per cent, which was termed as a barrier to exports diversification.

For the non-RMG sectors, economists and exporters have been seeking a uniform corporate tax rate and facilities similar to the RMG sector for some time, so that those industries can also have a chance to grow further.

“The government should keep the existing 0.5 per cent source tax, which will help to increase cash flow to entrepreneurs,” said Mirza Aziz.

International trade analyst and economist MA Razzaque said, “So far the government has been providing such facilities only for one sector, which is discrimination. But now it would be available to all.

“Only uniform corporate tax rate is not enough to facilitate export diversification. To achieve this, Bangladesh will need more research and development, and the government will have to take the necessary initiative in this regard, and create opportunities to attract buyers.”

He added, “After our LDC graduation, we may not be able to provide incentives to the export sector. This is why we have to give them the chance to become stronger. I think source tax could be kept at 0.5 per cent.”

According to the Export Promotion Bureau, Bangladesh earned $43.34 billion from the export sector in the first 10 months of the current 2021-22 Fiscal Year.

During this period, the apparel sector’s contribution was 81.58 per cent, home textile 3.07 per cent, leather sector 2.33 per cent, agriculture 2.4 per cent, jute and jute goods 2.23 per cent, frozen and live fish 1.07 per cent.

Zahid Hussain, former lead economist of the World Bank’s Dhaka office said, “Bangladesh will have to face a big challenge after LDC graduation. This is why policymakers should focus on widening the export basket, and sign FTAs or PTAs with key destination countries.

“The new tax policy will help increase export diversification, but where do we sell our products after Bangladesh’s LDC graduation if we lack duty-free market access? Besides, the government should analyse and recommend to manufacturers what kind of goods are valuable and where.”

He continued, “The government has proposed increasing the source tax, but the exporters claim that they are not getting their money back after the NBR deducts income tax. Transparency is the most important matter here.”

It should be noted that jute and jute goods exporters are not happy with the proposed tax policy because they are currently enjoying a 10 per cent tax rate.

Esrat Jahan Chowdhury, CEO of Tulika Eco and director of the Bangladesh Jute Goods Exporters Association, said, “Despite negative export growth, the government has increased the tax rate for this sector, which will put us in a more difficult situation.”