Home ›› 08 May 2023 ›› Front
In a bid to lower trade barriers and make doing the business easier with other nations during the post-graduation era, the government is going to withdraw or cut supplementary duty (SD) on around 200 tariff lines in the next budget for the fiscal year 2023-24.
In the next three consecutive budgets, the government will also cut and lift SD on 400-450 tariff lines to reduce trade barriers to imports and exports between Bangladesh and other nations after the country’s graduation from LDC status, sources in finance ministry said.
However, SD and RD will be lifted or cut on the items which would not directly put more forex pressure amidst volatile forex reserves due to economic headwinds triggered by Russia-Ukraine war and other global financial strains, said top officials of the ministry.
As Bangladesh has qualified in three categories in the second review, it is scheduled to graduate from a least developed country (LDC) to a developing country by 2026.
According to the sources, the government lays emphasis mostly on SD because high SD and sometimes imposition of SD are ‘disparaging’ for other nations while they are supposed to export goods to Bangladesh. There are around 7,500 tariff lines on imports of goods while there is SD on 1,926 tariff lines.
Besides, the government will reduce and withdraw regulatory duty (RD) on 200-250 tariff lines from around 3,500 existing tariff lines.
Replying to a question that duty cut on items may fuel forex pressure, a high official of the finance ministry said, “In this case, the National Board of Revenue (NBR) will play a role in reducing and lifting duties from the safe side as it has proposed cutting tariff on those items generally having less demand in the country.”
“So, this move may not put impact on forex crunch. Besides, these products are mostly import dependent. So, there is no chance to have negative impact on domestic production.”
“Rather, the NBR can achieve the target of Tk 4,30,000 crore revenue collection likely to be fixed by the government for FY24 and the move will help meet the $4.7 billion loan conditions set by the International Monetary Fund (IMF),” he added.
One of the IMF conditions is that Bangladesh has to raise the tax-to-GDP ratio by 0.5 percentage points in FY24, 0.5 percentage points in FY25, and 0.7 percentage points in FY26. To attain the target, the NBR will have to collect an additional Tk 2.34 lakh crore over the next three fiscal years.
The ministry officials said SD and RD imposed on alcohol, cigarettes, cars and weapons will remain unchanged apart from RD on 135 products, including include cosmetics, flowers, fruits and furniture imposed in 2022, aimed at discouraging imports and containing volatility in the foreign exchange market.
The government’s plan is to change SD and RD on 400-500 tariff lines in the next three financial years with around one-third of the tariff lines every fiscal year ahead of LDC graduation in 2026.
“RD will be removed with the alignment of SD on tariff line, but the government focuses on SD because RD will be imposed any time in a financial year while SD is not imposed without budget,” the official said.
“The move will help sign bilateral and regional free-trade agreements (FTAs) with partner countries to enter and compete more easily in the global market through reduced trade barriers and enhance opportunities to compete for foreign government procurement,” the official said.
Commenting on the issue, former lead economist of the World Bank’s Dhaka office Zahid Hussain said, “It is a positive move taken by the government’s side as it does not wait for the last moment rather it works from now before three years ahead of LDC graduation.”
“Therefore, the domestic industries will also get time to be competitive in the global market after graduation,” he added.
The country is likely to lose 14.28 per cent or US$5.73 billion worth of export earnings annually after its graduation to a developing nation from the LDC status, says the latest UNCTAD report.
It is because of the country’s overwhelming dependence on textiles and clothing (T&C) exports bound for the markets with high preferential tariff margins.
Besides, the country’s exporters will have to face tough competition and high tariff when entering the international markets.
Zahid Hussain also said, “Bangladesh is now getting operationalisation of services waiver and preferential treatment in favour of services and service suppliers from the LDCs, but after graduation, it will no longer get the facility.”
“Bangladesh will also face difficulties in signing the agreements if discriminatory tariff exists in the country such as high SD, RD on imports, low for production. Even in that case, the other nations can impose duties at their will.”
“The move will also encourage foreign and local investors to export goods which are now showing cold shoulder due to high and protective tariff and it will reduce dependency on ready-made garment exports,” he added.
