Bangladesh set to cut RMG export tax by 40pc, corporate tax by 20pc

Jasim Uddin | Updated at 01:40am on August 19, 2018

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A file photo shows workers sewing clothes at a readymade garment factory on the outskirts of Dhaka. The government is set to cut the source tax on export earnings for readymade garment sector by 40 per cent and exporters’ corporate tax by 20 per cent amid hectic lobbying by them. — New Age photo

The government is set to cut the source tax on export earnings for readymade garment sector by 40 per cent and exporters’ corporate tax by 20 per cent amid hectic lobbying by them.
The source tax on RMG export earnings will be cut to 0.60 per cent from the existing 1 per cent while corporate income tax rate for the RMG manufacturers and exporters is also likely to be cut to 12 per cent from 15 per cent, said finance ministry officials.
National Board of Revenue already sent a summery to law ministry for vetting after government high-ups made a decision on the issue, finance ministry officials involved with the development told New Age on Thursday.
They said that the government decided to cut the export tax rate and restore the corporate tax rate for apparel industry after exporters intensified their pressure putting forth possible increase in their cost of production due to implementation of upcoming new wages for workers.
Apparel exporters also argue that Bangladeshi exporters are facing stiff competition in global market for the rise in production cost.
The government may have considered the issues while deciding tax rate cut, they think.
The probable reduced source tax will also be applicable for all other exporters like frozen food and leather sectors.
The rate of export source tax was 0.70 per cent for the sector in the last FY 2018.
NBR officials said that the government would offer the benefit with retrospective effect from July 1.
Source tax deduction authorities, mainly banks, will adjust the amount deducted in the last one and a half month from the applicable tax in coming days.
A statutory regulatory order will be issued soon in this regard.
The government in the budget for the current fiscal year 2018-2019 increased the withholding tax, known as source tax, on export earnings for apparel sector to 1 per cent in a bid to boost revenue generation from the sector.
The rate of source tax was increased to 1 per cent in last fiscal year 2017-2018 which was later lowered to 0.70 per cent through a statutory regulatory order which expired on June 30, 2018.
In the budget, the government also increased corporate tax rate to 15 per cent for the sector from that of 12 per cent in previous FY 2018.
Corporate tax rate for green building certificate holding apparel companies, however, increased to 12 per cent in the year from the previous 10 per cent.
Bangladesh Garment Manufacturers and Exporters Association and Bangladesh Knitwear Manufacturers and Exporters Association have been demanding withdrawal of export tax for the sector for next three years since announcement of the budget proposals on June 7.
The associations also demanded reinstatement the corporate tax rate to previous rate.
Apparel sector leaders have also intensified their lobbying with the government over the issues.
Tax authorities were forced to backtrack from its position to increase the tax rate for the apparel sector contributing more than 80 per cent of total export earnings.
But the contribution of the RMG manufacturers and exporters in revenue collection was very insignificant, officials said.
NBR in FY 2015-2016 collected only Tk 1,484 crore as source tax mainly from RMG export.