Bangladesh RMG sector calls for tax breaks and incentives in the FY25 budget

Amid slowing global demand and rising production costs, Bangladesh’s garment industry is calling on the government for tax breaks and broader policy support in the upcoming FY25 budget. This includes a significant cut in source tax and VAT relief on raw materials, measures they say are necessary to cope with a difficult economic climate.

The industry is asking the government to reduce the source tax on exports from the current 1%. up to 0.5 percent and maintaining this rate for the next five years. This follows an increase in source tax on export earnings to 1% in the 2022-23 budget.

Amid slowing global demand and rising production costs, Bangladesh’s garment industry is calling on the government to introduce tax breaks and expand policy support in the upcoming FY25 budget. This includes a significant source tax cut and VAT relief on raw materials, measures that will they believe are necessary to cope with the difficult economic climate.

Manufacturers argue that the post-Covid-19 economic environment, coupled with ongoing conflicts such as the Russo-Ukrainian and Israeli-Palestinian wars, have prolonged global economic instability, negatively impacting retail ready-made garment (RMG) sales, even as they warn The slowdown in the global economy may continue until 2024, putting further pressure on the export sector and foreign exchange reserves.

RMG manufacturers believe that reducing source tax to 0.5 percent would help address these challenges and encourage exporters to increase export volumes. They also demand that the income tax deduction for cash incentives be reduced from the current 10%. to 5 percent, arguing that rising bank loan rates, fuel shortages, higher raw material and transportation costs, and higher oil and gas prices made it difficult to maintain production capacity.

The global economic slowdown has led to a reduction in export orders from foreign buyers and demands for slower deliveries, causing liquidity problems for exporters. RMG producers stressed that political support is essential to sustain their operations in these difficult times.

They also demanded a reduction in the corporate tax rate to 12 percent for the industry at all levels of taxation and VAT exemption for certain locally sourced goods and services.

Garment manufacturers have also requested exemption from 7.5 percent VAT on the sourcing of raw materials for recycled fibers and a further 15 percent VAT on the purchase of these fibers by spinning mills. They proposed duty-free or concessional import of photovoltaic and electrical machinery to modernize factories and reduce operating costs.

In addition, they called for the adoption of the Harmonized System (HS) for imports, a standardized method for classifying traded products.

SM Mannan, president of the Bangladesh Garments Manufacturers and Exporters Association (BGMEA), has stated that he wants a business-friendly budget for FY25.

“We met the prime minister and presented our demands. For the good of the industry, we want to reduce source taxes to 0.5 percent, he said, also advocating further political support and food rationing for RMG employees.

Fiber2Fashion Information Desk (DR)