Govt limiting cash incentive offers

The government is going to limit cash incentives offered against the export of textiles and apparels.

Authorities concerned are planning to bring the freight costs, commission paid in foreign currency and insurance cost out of the purview of the cash incentives against the sectors.

The Bangladesh Bank will soon issue a new circular in this regard, according to a letter sent by the bank’s Foreign Exchange Policy Department to the Finance Division.

Currently, the export-oriented sectors get cash incentives for exports under CMT (cut, make and trim) manufacturing.

In CMT manufacturing, apparel buyer pays the manufacturers for the cut-make-trim process. Pre-production process like the order processing, product development, pattern making and pattern grading, and post-production process such as shipping of goods are handled by the buyer.

“The government move will increase complications. There would be no such issues if the recommendations made by the Technical Committee of the Ministry of Commerce are implemented,” Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Senior Executive President Mohammad Hatem, told The Business Post regarding the planned change in providing cash incentives.

The commerce ministry technical committee had recommended a few years ago to provide export incentives at a flat rate to exporters in the textile and apparel sectors.

The technical committee was formed with representatives from the Ministry of Finance, Ministry of Commerce, Bangladesh Bank and Tariff Commission.

Under the new conditions, the letter states that the free on board (FOB) value of the export products will be determined by the total addition of value of the imported materials assessed by customs authorities on no-cost basis and the repatriated CMT value along with the value of other materials collected under the back-to-back method.

Besides, the currently applicable rate of local value addition shall be maintained for being eligible to get export incentives, said the letter signed by Foreign Exchange Policy Department Director Md Sarwar Hossain.

At the local level, only in the case of the textile sector, incentives are available against export earnings with a 20 per cent value addition. Moreover, companies in the export-oriented sector get alternative cash assistance at the rate of 4 per cent in lieu of customs bonds and duty drawbacks.

In the current fiscal year, the government is giving incentives against the products of 42 sectors, including textile and apparel. Under the incentive policy, export sector entrepreneurs get cash assistance ranging from 4 to a maximum of 20 per cent against these products.

There is an obligation to submit export subsidy or incentive applications within 360 days of repatriation of export proceeds.

Mohammad Hatem said the value addition limit for apparel products cash assistance was once 25 per cent, but it was reduced to 20 per cent in 2003. Then the limit was raised to 30 per cent in all types of exports in 2021 which was revised to 20 per cent in 2022.

Traders are benefiting from the trend of exporting high-value ready-made garments. If a new complicated circular is issued now, the exporters will be in crisis again, he added.