‘Govt must consider reducing source tax’

A lower source tax and cash incentive for non-cotton goods export in the next national budget will massively help the country’s RMG and other export-oriented sectors tackle the global economic crisis, says BGMEA President Faruque Hassan. During an interview with The Business Post’s Arifur Rahaman Tuhin, he also shed light on how soft loans will also help businesses pay workers’ wages and get back on their feet

Every year, BGMEA places some demands before the budget. What’s your expectation from the FY2023-24 budget that will come in June?

Before talking about our demands, I have to explain the current situation of the country and the export sector.

Currently, Bangladesh is seeing its foreign exchange reserve falling continuously. We have two major foreign currency earning sources — export and remittance — and both are not performing well due to the ongoing economic crisis here and elsewhere around the world.

You know, nearly 84 per cent of export earnings came from the readymade garment sector in the first 10 months of FY2022-23, and we saw negative earnings in the last two months. The overall export earnings also fell in four of the first 10 months of FY23. The next two months are also likely to see negative earnings.

Our forex reserves are dwindling gradually, but the country will have to pay back foreign loans with foreign currency. That means more pressure is coming in very soon and we will have to earn foreign currency as much as possible to tackle the crisis. The government should consider this situation in the upcoming budget.

Do you have any specific proposals?

Yes. Bangladesh Garment Manufac turers and Exporters Association (BGMEA) has some logical demands for the upcoming budget and they have already been sent to the authorities concerned, including the National Board of Revenue. I believe that the government will consider the demands for the sake of the country and the sector’s interest.

Our major demand is having the source tax reduced from 1 per cent to 0.5 per cent in all export-oriented sectors for the next five fiscal years. It was 0.5 per cent, but the finance minister increased it in the last budget.

Considering the current situation, it should be taken back to 0.5 per cent again. This will work as an instant cash flow support to us.

All the export-oriented sectors, except leather and leather goods, are performing in the negative, but they still have to pay their bills and the workers. Minimum financial support has now become important for business owners. If the government reduces source tax, we will get at least an additional $260 million annually, which will be a big support.

Due to the ongoing global economic crisis, the international apparel market is on a downtrend. Nobody knows when the situation will get better. Amid this situation, it will be difficult for us to increase export to traditional markets. Still, we are doing well in non-traditional markets.

Besides, we are exporting 25 per cent of non-cotton apparel products, which are dominating the global market. And despite the sluggish market, non-cotton product manufacturers are receiving a good number of orders and there is a chance that they will increase. That is why we are demanding a 10 per cent cash incentive for non-cotton goods export.

Your sector is already enjoying several incentive packages and the central bank has depreciated taka against USD significantly. Amid the situation, why you are seeking further incentives at a time when many experts are even suggesting withdrawing the existing packages?

It is true that we have received some incentive packages, such as a 1 per cent incentive on overall export and 4 per cent on exporting to non-traditional markets. Our export-oriented SMEs are also enjoying another 4 per cent incentive.

Look, thanks to the incentives, we are now the largest export-earning sector. We contributed 82 per cent to total earnings in FY2021-22. While we performed negatively in the Western markets, we achieved a nearly 30 per cent growth in the non-traditional markets.

So, we believe that if the government provides an incentive for non-cotton goods export, it will attract more investors to the sector. The facility will also help us to produce goods with competitive prices and earn more foreign currency.

We know that the government is under pressure and only the export sector and expatriates can help tackle this. If both sectors fail to earn expected foreign currency, how will the country pay back the huge amounts of foreign loans and import essential items? In that case, the pressure will increase day by day. So, which is better?

Besides, the RMG sector employs nearly 4 million people and the number of overall formal sector employees is 1.12 million, most of whom work in export-oriented industries. The new wage structure for the RMG sector will also come into effect at the end of this year. If these sectors cannot earn, how will they pay wages? If they can’t pay, factory owners will be forced to let workers go and that could lead to massive worker unrest.

That’s why I think the government’s priority should be boosting the remittance and export sectors. They should also take strong steps to control money laundering.

The government should find more manpower markets and send human resources with proper training as well. The expatriates also deserve to be honoured when they return. If we ensure that, they will be happy to send remittances through legal channels instead of illegal ones.

What should you and the government do to avoid worker unrest?

As the government has formed a new wage board, workers’ wages will increase significantly soon. That means our cost of doing business will rise amid the economic crisis and it’ll be another pressure that we will face.

To tackle the crisis, we need to find more markets as soon as possible and increase our bargaining capacity to get fair prices for our products. There is no alternative to research and development.

We are seeking low-cost loans to pay worker wages just like the government had provided during the Covid-19 pandemic. We paid back the loans on time. If the government approves the loans again, we will keep our commitment. This support will help us to do business easily.

When do you think the crisis will end?

The economic crisis mainly happened due to the Russia-Ukraine war and the US interest rate hikes. We don’t know when the war will be over. But we believe that the brands will come to us with more orders once they can sell the products that are currently in their stocks.

Also, the good news for us is that Western buyers are shifting from China and coming to Bangladesh. I think the apparel sector earnings will improve at the end of 2023 because we are likely to receive a good number of work orders from October-November.