Why do RMG owners never make the top taxpayers list?

The readymade garments industry contributes over 13% to the GDP of Bangladesh and more than 82% to overall export earnings, and yet RMG manufacturers are nowhere to be found on the latest list of the highest taxpayers in the country.

Figures issued on Wednesday by the National Board of Revenue (NBR) revealed the highest individual taxpayer for the fiscal year 2015-16 as Haji M Kaus Mia, the owner of Hakimpuri Jarda.

The other top taxpayers were from the pharmaceutical and fertilizer industries.

“Well known and established businessmen run their business on loans from banks (so) they cannot pay the desired tax as they have to pay the loans,” explained M Kaus Mia, who started paying taxes 12 years before Bangladesh was born in 1971.

“But there are some people who are willingly evading taxes and who usually siphon off their money to foreign countries.”

National Board of Revenue (NBR) chairman Md Najibur Rahman told the Bangla Tribune that far from being a local issue, tax evasion also happens in developed countries.

“Its universal problem; rich people evade tax,” he said. “It’s my earnest request to the rich people of the country to pay taxes and to perform their duty as a citizen.”

The Exporters Association of Bangladesh (EAB) mounted a stern defence of its RMG members, however, explaining to the Dhaka Tribune why the apparel manufacturers cannot reach the mark of the highest taxpayers on the list.

“There is less profit in the RMG business as a manufacturer has to pay for cloth, accessories, washing, dying, printing and finally wages for the workers to make the finished product,” EAB President Abdus Salam Murshedy said.

Other representatives of the $28 billion RMG sector blamed the system and cumbersome process of handling taxes issues. Mohammad Hatem, former vice president of the Bangladesh knitwear manufacturers and exporters association (BKMEA), said the apparel makers are paying more taxes than the highest taxpayers as rated by the NBR.

“Despite paying taxes in line with the income, tax files of the RMG manufacturers are not settled in time. As a result, there is no chances to be eligible for the highest taxpayer category,” he said.

“The tax files of 2012 are yet to be settled but we are paying taxes on regular basis.”

Other reasons given for lower tax payment rates are the existing rules which stipulate that a manufacturer does not have to pay taxes if it reinvest profits and/or takes loans to finance business expansion.

“To remain in business, the apparel manufacturers must expand (so) they need to take loans which help them to get rebates on tax due to reinvestment,” said EAB president Salam, who is also the managing director of Envoy Textile.

AB Mirza Azizul Islam, a former adviser to the caretaker government, told the Dhaka Tribune that such relief on taxes and other facilities could explain why the RMG sector does not feature on the NBR list for 2015-16.

“As a whole, the RMG sector is big and its contribution to the Bangladesh economy is considerable. But, the scale of operation is not big,” he said.

Former NBR chairman Abdul Majid told the Dhaka Tribune that business people who are “clean and clear” in terms of their financial statements are “awarded as the highest taxpayers based on their payments”.

“RMG manufacturers do their business based on imports and exports and so their value addition is less,” he added.

But Khondaker Golam Moazzem, research director of Centre for Policy Dialogue (CPD), told the Dhaka Tribune that the government should prioritise the collection of corporation tax and that this should be based on the Financial Reporting Act.

Currently, RMG manufacturers pay only 20% corporate tax, compared to a rate of up to 42% for other business groups.