CPD RMG Study Stitching a better future for Bangladesh
Published in the Daily Star on May 23, 2017
Businessmen in the export-oriented garment accessories sector are fearing a rise in production costs due to implementation of the proposed VAT law from July despite assurances to the contrary from the revenue authority.
At present, all export-oriented sectors are out of the purview of value-added tax. The new law prescribes a uniform 15 percent VAT for most goods and services.
The VAT officials at the field levels — knowingly or unknowingly — have said that if any trader buys garment accessories from the local market and sells those to the export-oriented garment factories, VAT will have to be paid at the government-fixed rate.
“When I met a VAT official he told me that the garment accessories traders will have to pay VAT if he purchases from the local markets and re-sells to the same markets,” said an accessories trader and garment exporter asking not to be named.
However, Zakir Hossain, deputy project director of the National Board of Revenue’s VAT Online Project, said if any accessories trader purchases goods from the local market by opening letters of credit they will not have to pay the VAT.
The traders will have to pay the VAT if the goods are purchased from the local markets in cash, but the sum can be reclaimed at the end of the month in the form of rebate.
“So ultimately, the garment accessories makers and traders would not be paying the VAT,” Hossain told The Daily Star by phone.
The export-oriented garment accessories sector should be exempt from VAT even if they purchase from and re-sell to the local market, the accessories trader said.
If the proposed VAT rate of 15 percent is implemented for garment accessories as well, the garment sector’s cost of production will go up abnormally and Bangladesh will lose its competitiveness in the international markets, said the trader.
“Most of the accessories makers and traders run small businesses as they do not have big capital. As a result, these small accessories makers and traders would be in big trouble if the new VAT law is applied to the sector.”
Moreover, the new VAT is not well understood by the majority of the small accessories makers and traders.
“So, there is a big chance of misunderstanding between the VAT officials and the small businessmen,” he added.
Currently, garment exporters are overburdened with the 0.70 percent tax at source, said Md Abdul Kader Khan, president of the Bangladesh Garment Accessories and Packaging Manufacturers and Exporters Association.
If the VAT is imposed the sector will be abnormally affected, he said.
The garment accessories makers have invested more than Tk 30,000 crore, according to Khan.
The number of accessories making factories is nearly 1,600.
“Now we are capable of meeting the whole requirement of the garment sector,” said Khan.
The share of accessories sector is 20 percent in the total garment export, he said. For instance, if a formal shirt is exported at Tk 100, the accessories makers get Tk 20.
With the rise of the sector, the local manufacturers can supply cartons, sewing thread, buttons, stickers, labels, steel buttons, zippers, hand tags, plastic hangers, collar interlinings, tissue papers, plastic clips and printed materials to the garment sector.
The local manufacturers are also supplying accessories worth nearly $1 billion in a year to some other rising export-oriented sectors like ceramics, frozen fish, flowers, crockery and pharmaceuticals.
In the early days of garment business in the 1980s, Bangladesh was dependent on accessories imports from China, Hong Kong, Taiwan, Turkey and India.
“Now, the accessories makers import only if the retailers and brands select a particular item from a particular country,” Khan added.
