BGMEA for source tax cut to 0.5% for 5yrs

Bangladesh’s apparel makers have demanded a 0.5 percentage point reduction in source tax from the existing 1 per cent for the next five fiscal years as the sector is facing trouble due to low export orders and earnings amid the global economic crisis.

In the previous fiscal year, the tax rate was 0.5 per cent, but the government increased it to 1 per cent in FY23.

The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) made the tax reduction call at a press conference in the capital on Thursday, adding the move – if implemented – would give investors the confidence to formulate medium-term trade and investment strategies.

The association also sought a reduction in the corporate tax rate to 12 per cent and the withdrawal of the 10 per cent tax on cash incentives for readymade garment (RMG) exports.

According to the Export Promotion Bureau (EPB), three months of this fiscal year saw drops in the apparel sector earnings. This happened for the first time after the Covid-19 pandemic.

Earnings from the sector declined by 7.52 per cent year-on-year to $3.16 billion in September last year, 1.04 per cent to $3.89 billion in March this year, and 15.48 per cent to $3.33 billion the next month.

However, the sector was able to retain earnings growth in the first 10 months of the 2022-23 fiscal year, posting a 9.09 per cent year-on-year growth.

BGMEA President Faruque Hassan told the press briefing in terms of value, apparel export earnings from the US market, the largest export destination for Bangladesh, declined by 12.66 per cent between November 2022 and March 2023.

“But in terms of volume, it fell by 25.95 per cent. During the period, earnings from the European Union (EU) increased by 7.1 per cent considering value but declined by 4.12 per cent in terms of volume,” he said.

Nearly 80 per cent of the clothing sector’s income in the first 10 months of FY23 came from the US and EU markets. The BGMEA president feared negative export earnings will continue for at least the next two months.

Faruque, however, said they are performing well in the non-traditional markets as the government is providing cash incentives for these destinations.

“We are now manufacturing high-value items, and that is why export earnings are still seeing a positive trend. As orders declined, it became tough for us to survive,” he said.

He also said the apparel makers as well as the country are under pressure due to the ongoing global economic crisis. “That is why we need policy support from the government.”

Furthermore, he said non-cotton items dominate the global market and Bangladesh’s apparel makers want to cash in on the opportunity. “That is why we are seeking a 10 per cent cash incentive for exporting non-cotton items to encourage the investors.”