The government on Monday slashed the source tax on export proceeds for all sectors, including readymade garment, to 0.25 per cent from 1 per cent following exporters’ demand for the cut to make the country’s exports competitive in the international market.
Income tax wing of the National Board of Revenue issued a statutory regulatory order in this connection, making the new tax rate effective from the day (October 21).
The reduced tax rate will remain effective up to June 30, 2020, according to the SRO.
Officials of the revenue board said that they reduced the tax rate as per decision of the government’s high ups and pressure from the export-oriented trade bodies, particularly the Bangladesh Garment Manufacturers and Exporters Association.
Due to the reduction in the export tax, the revenue board will get at least Tk 2,000 crore less in tax from the apparel sector which accounts for more than 83 per cent of the country’s total export earnings, they said.
There is no available statistics for the other sectors.
NBR officials said that the NBR received Tk 1,802 crore from apparel exporters in last fiscal year FY 2018-19.
In three months (July-September) of the current fiscal year 2019-20, source tax on export earnings at 1 per cent stood at Tk 517 crore from the sector.
Country’s exporters excluding except jute and jute goods exporters also enjoyed the tax benefit on export earnings at the same rate of 0.25 per cent in last fiscal year 2018-2019 though the standard rate of the tax is 1 per cent in the Income Tax Ordinance-1984.
The NBR reduced source tax on export earnings twice in last fiscal year — initially to 0.60 per cent from 1 per cent and finally to 0.25 per cent — following demand from apparel markers.
Jute and jute goods exporters paid export tax at the rate of 0.60 per cent in FY19.
As per income tax law, the regular rate of source tax on export earnings is 1 per cent, which was reinstated in the budget for the current fiscal year 2019-2020 after the expiry of the reduced tax rate facility on June 30.
After reinstating the source tax at 1 per cent, different trade bodies particularly BGMEA and Bangladesh Knitwear Manufacturers and Exporters Association demanded a cut in the source tax to facilitate exports.
Readymade garment exporters claimed that apparel sector had been losing its competitiveness in the international market due to various challenges on both domestic and international fronts.
The BGMEA in letters to the government high-ups demanded reinstating the tax at 0.25 per cent to facilitate the country’s RMG sector in surviving amid challenges in both domestic and international markets.
The trade body said the cost of production in the sector increased due to additional expenditure for remediation related to compliance, and hike in transport cost and utility bills while the prices of apparel products did not increase in the international market. BGMEA president Rubana Huq in a letter to the Prime Minister’s Office said that Bangladesh’s apparel makers were also facing difficulties in operating their business with maintaining competitiveness due to hike in wages for workers.
The new minimum wages for apparel workers came into force from December, 2018 with a 51-per cent rise in the minimum wages to Tk 8,000 from Tk 5,300, she said.