Bonanza for RMG makers: govt cuts export, corporate tax

Staff Correspondent | Updated at 12:01am on September 11, 2018

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A file photo shows workers sewing clothes at a readymade garment factory on the outskirts of Dhaka. The government has cut source tax on export earnings for readymade garment and other export-oriented sectors to 0.60 per cent from 1 per cent amid apparel makers’ hectic lobbying for the reduction. — New Age photo

The government has cut source tax on export earnings for readymade garment and other export-oriented sectors to 0.60 per cent from 1 per cent amid apparel makers’ hectic lobbying for the reduction.
Corporate tax rate for apparel makers and exporters has also been reduced to 12 per cent from 15 per cent.
Internal Resources Division of the finance ministry on September 6 issued two separate statutory regulatory orders giving the benefits with retrospective effect from July this year.
Reduction of export source tax, known as withholding tax, may narrow the government earnings from the sector by around Tk 1,600 crore, according to a National Board of Revenue estimate.
Officials said that the NBR estimated revenue earnings worth around Tk 4,000 crore at the rate of 1 per cent from the targeted export earnings in the fiscal year of 2018-2019.
Now, its total revenue earnings will fall short of the target by around Tk 1,600 crore, they said.
The government set a target of earnings worth $39 billion from export of goods in the year.
According to the SROs, the reduced tax rates will remain applicable only for the current fiscal year (2018-2019) which will end on June 30, 2019.
Export tax rate was 0.70 per cent in the FY 2017-2018.
The government in the budget for the current fiscal year increased the withholding tax, known as source tax, on export earnings for the apparel sector to 1 per cent in a bid to boost revenue generation from the sector.
In the budget, the government also raised the corporate tax rate for the sector to 15 per cent from 12 per cent.
The corporate tax rate for green building-certificate holding apparel companies, however, increased to 12 per cent from 10 per cent.
As per the new SRO, the corporate tax rate for green factories has also been reinstated at 10 per cent.
NBR officials said that the government cut the export tax rate and restored the corporate tax rate for the apparel industry after exporters, mainly from the RMG sector, had intensified their pressure on the government to effect the changes suggesting that their cost of production would increase due to implementation of the upcoming new wages for workers.
Apparel exporters also argued that Bangladeshi exporters were facing stiff competition in the global market due to a rise in their production cost without any increase in the prices of their products in the international market.
The government considered the issues while deciding the tax rate cuts, they said.
A senior NBR official said that the decision was taken to boost export earnings and promote employment generation in the country.
The government has considered the RMG exporters’ demand as it is the largest export earning sector as well as the largest employment provider in the country, he said.
According to the new SRO on source tax on export earnings, the reduced
tax rate would applicable for all export sectors including RMG, leather, frozen foods, vegetables, garment accessories, plastic, chemical and others.
Source tax deducting authorities, mainly banks, will adjust the amounts deducted in the last two and a half months from the applicable tax in the coming days.