VAT waiver planned for potential recycled clothing backward industry
To encourage garment manufacturing from recycled fibres, the government is considering withdrawing the existing 7.5% value-added tax (VAT) on the collection of textile waste by spinning mills in the next fiscal year.
The concept of circular fashion, which primarily relies on recycled fibres, has gained significant attention globally in recent years, including in Bangladesh.
The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) had previously requested the National Board of Revenue (NBR) to withdraw VAT and other taxes imposed on such waste.
Currently, the market for this type of waste in the country is about $400 million.
BGMEA Vice President Shahidullah Azim welcomed this initiative.
“It is possible to manufacture $5 billion worth of clothing from recycled fibres. As a result, a huge amount of foreign exchange spent on yarn and fabrics could be saved,” he told The Business Standard.
Additionally, the waste generated during the spinning of fabrics from man-made fibres is also going to be exempted from VAT at the production stage.
According to finance ministry officials involved in budget formation, Finance Minister AHM Mustafa Kamal may propose such measures through the finance bill in the upcoming national budget to support the recycling industry as a backward linkage of the garment sector.
Bangladesh, the world’s second largest garment exporter, is also second in cotton imports. Around 75% of clothes in Bangladesh are made of cotton.
According to research conducted by the Circular Fashion Partnership, a cross-sectorial project led by Global Fashion Agenda, in 2019, Bangladesh produced approximately 5,77,000 tonnes of waste from the readymade garment industry and fabric mills, of which 2,50,000 tonnes, accounting for almost half of the total, were 100% pure cotton waste.
Based on the findings of the Circular Fashion Partnership, if 100% cotton waste was recycled within Bangladesh, imports could decrease by around 15%.
According to sources in the National Board of Revenue (NBR), there is currently a 7.5% VAT imposed on the sale of waste cotton and fabric waste. The same VAT rate is applicable to man-made fibre fabric waste as well.
According to industry insiders, several big companies – including Beximco Limited and DBL Group – have already invested in the country with the aim of producing recycled fibre.
DBL Group started producing recycled fibre two years ago.
MA Rahim Feroz, vice chairman of DBL Group, told TBS, “The whole world is now encouraging the production of recycled clothing. In this case, if the government exempts VAT, it will have a positive impact on setting up industries.”
This initiative is part of a broader government plan to grant tax exemptions to emerging and promising industries, while also considering reducing tax benefits for industries that have already gained some strength.
VAT exemptions for several local industrial sectors are set to expire this year. But the government plans to extend the tax benefits for some home appliances, including blenders, juicers, and pressure cookers, for another two years. Washing machines, microwave ovens, and electric ovens can also avail themselves of the same benefits.
The tax exemption facility for ICT and computers is likely to be extended for another three years.
The VAT-free threshold for the production of handmade biscuits is being raised from Tk150 to Tk200, and for cakes, it is being raised from Tk250 to Tk300. As a result, these producers will receive some benefits.
Production of coconut copra waste used as animal feed may also be exempted from VAT. Apart from this, VAT exemption can come for the production of optical fibre cables and anti-malaria and anti-tuberculosis drugs.
Additionally, there is a possibility of withdrawing the advance tax on the import of agricultural machinery such as paddy transplanters, dryers, sprayer machines, and potato planters. Moreover, advance tax may also be withdrawn on the import of aircraft engines, turbo engines, aircraft machinery, various types of containers, and solar-powered water distillation plants used for purifying sea saltwater.
To further encourage the local elevator and escalator industry, the duty on the import of elevators may be increased to 15% from the existing 5% as part of safeguarding them.
Two or three big companies are likely to greatly benefit from this. But by being dependent on imports, construction costs may increase.
The total tax incidence on imports may be increased from the current 15% to 43% in order to protect local cashew nut shelled producers.
The electric switch and socket manufacturing industry may continue to benefit from the reduced rate on raw material imports.
However, to safeguard local power equipment and parts manufacturers, the import facility for certain types of PHC, SPC, PC pile, and SPC pole at a reduced rate may be cancelled.
In order to protect the local industry, there is a possibility of increasing the import duty on software from 5% to 25% and imposing a 15% VAT. Additionally, the existing customs duty on the import of electric panels may be raised from 1% to 10%.
The government is also likely to withdraw the import VAT on ethylene glycol, which is used as a raw material in the production of polyester fibres and for antifreeze formulations. This list also includes Terephthalic acid and hot-rolled stainless steel in coils.
wagely, Shadhin to provide smartphone EMI facility for RMG workers
wagely and Shadhin Fintech have announced the launch of an exciting new initiative that will allow EMI purchases for Bangladeshi readymade garment (RMG) workers for the first time.
This innovative partnership aims to digitally empower workers in the RMG industry by offering them affordable access to smartphones, allowing them to make purchases without facing financial difficulties and increasing their access to technology, said a press release.
Responsible for almost 9.25% of the GDP of the country, access to smartphones is still a luxury for the majority of these workers, even though a basic necessity to sync as a smart citizen moving forward with the country and its growth.
RMG workers in Bangladesh have very limited access to formal and regulated financial facilities, which often makes it challenging for them to make informed financial decisions.
Limited penetration of smartphones has also been observed as being correlated with being a barrier to the literacy rate for these blue-collar workers.
According to the press release, the equated monthly installment (EMI) facility will be made available to the workers through wagely’s platform, powered by Shadhin’s Microcredit Regulatory Authority (MRA)-regulated microfinance digital lending platform.
With this facility, for the first time in Bangladesh, RMG workers will be able to purchase products such as smartphones and pay for them in 3-to-6-month period installments, without having to worry about upfront payments.
The pilot is aimed to impact the lives of workers, especially those who may not have the means to make large purchases all at once.
Initially targeting workers in the RMG industry, this facility will be extended to more blue-collar workers across various industries using wagely’s services.
Speaking about the initiative, Noor Elahi, managing director of wagely Bangladesh, said: “As the country is growing towards becoming Smart Bangladesh, it is essential that we include one of the most valuable segments of the population in this growth. This initiative aligns with our mission of improving the financial wellbeing of workers as well as with the vision of smart citizens of a Smart Bangladesh. Our partnership with Shadhin has made this possible, and we look forward to continuing to work together for more innovative solutions.”
Kashfia Mahmud, CEO of Shadhin Fintech, said: “Our goal is to make financial services accessible to everyone, especially those who face barriers to accessing such services. We are excited to partner with wagely, Bangladesh’s leading financial wellness platform to achieve this. By providing EMI facilities to RMG workers, we are enabling them to purchase the products they need digitally and in a few simple steps. This partnership is an excellent example of how technology can be used to promote financial inclusion and improve people’s lives.”
Debut meeting of RMG minimum wage board held without placing any proposals
The first meeting of the garment workers’ wage board came to an end without placing proposals from any parties at the office of the minimum wage board in the capital on Wednesday.
However, the board members expected that they will be able to recommend a specific sum as the minimum monthly wage for more than four million RMG workers in the coming meetings, where both parties may place their proposals.
Earlier on April 9, the Ministry of Labor and Employment formed the wage board of four permanent members, led by Senior District Judge Liaquat Ali Molla, to review the pay of RMG employees.
Moksud Belal Siddiqui, a representative for the Bangladesh Employers’ Federation, Sultan Ahmed, a leader for the Jatiya Sramik League and Dhaka University Prof Md Kamal Uddin, an independent member, make up the three other members of the board.
Moreover, the ministry also announced the names of two members – former president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) Md Siddiqur Rahman and Bangladesh National Garments Workers Employees League President Sirajul Islam Rony as owners’ and workers’ representatives, respectively.
Regarding the first meeting, Board Chairman Liaquat Ali Mollah told the media that they introduced themselves to each other as it was the first meeting.
“We discussed the overall situation of the sector and the wage structure of the past years,” he added.
He also said that in accordance with the past year’s wages, they will fix a new wage by discussing the proposals of both parties.
Former BGMEA President Md Siddiqur Rahman said that they have to think about the industry and the well-being of the workers of the sector.
“In this regard, the owners and the workers both have to work together to fulfill the well-being of the workers. The government also has a vital role in this regard as the RMG sector is the largest manufacturing sector of the country,” he added.
In the wage board, there are representatives from owners, workers and an independent representative, and they are hopeful that they can reach a final decision by the due time.
“On the first day, we considered the global economic situation, the current situation of the country’s RMG sector and the situation of the workers. We are working to set a win-win situation for all while keeping the overall situation in mind,” he added.
Regarding a question on the minimum wage, he said that they haven’t set any amount yet and they are asked to prepare proposals in this regard in the next meeting.
He also said that the RMG sector provides an annual increment of 5% regularly.
In the next meeting, the representatives from owners and workers will submit proposals from their ends, attendees of the meeting said.
Workers’ representative Sirajul Islam Rony said that they will discuss the matters with everyone and then submit a proposal.
As per the Bangladesh Labour Act and labour rules, the government will form a new wage board every five years and it will set a new wage structure.
In December 2018, the government-nominated board declared a new pay structure, fixing minimum wages at Tk8,000 per month.
Beginning in early 2022, RMG workers staged demonstrations several times demanding the formation of a new wage board and Tk24,000 as the monthly minimum wage, citing skyrocketing inflation in the country.
Bangladesh’s apparel export to EU increases by 3.9%, remains second largest source
Bangladesh’s apparel export to European Union has shown value-wise growth by 3.9% during the January-March period of 2023 to $5.6 billion from $5.4 billion in January-March 2022.
Also, with 24.07% share of the EU’s total RMG import (in terms of dollar value), Bangladesh remains the second largest apparel import source for the EU after China (China’s share 24.55%) during January-March 2023.
However, according to the quantity-wise import statistics (measured in kilogram), Bangladesh became number “one” sourcing country for EU during the mentioned months of 2023. In fact, Bangladesh secured the top position in EU’s apparel sourcing list in terms of quantity in 2022 as well.
In quantity term, import from Bangladesh saw a decline by 3.67%, or 11.84 million KGs, says a statistic recently published by Eurostat.
The quantity decline was caused by inflated unit price (due to raw materials, transportation and other production cost hike) which was increased by 7.86% in January-March of 2023.
“The Eurostat has published the data on EU’s apparel import for the period of January-March 2023 and we have compiled and analyzed it based on year-on-year progress,” said Bangladesh Garment Manufacturers and Exporters Association President Faruque Hassan.
The Eurostat statistic says, apparel import from the world in the mentioned period has declined by 4.94% compared to the corresponding period of 2022, about 1.22 billion dollars decline. In terms of quantity, EU’s clothing import had a stiff downturn by 12.64%, which is 136.88 million KGs less than Jan-Mar 2022.
EU’s import from China the 2nd largest apparel import source has declined by 17.80% in value terms to $5.7 billion during the mentioned period fromU$6.99 dollars. In terms of quantity, the decline is recorded 22.46 % or 65 million KGs.
Among the top ten apparel-sourcing countries Bangladesh, India, and Vietnam have shown positive growth while EU’s apparel import from other countries including Turkey, Pakistan, Sri Lanka, and Morocco has declined.
As per the data, during January-March 2023, EU’s imports from Turkey the third largest apparel import source of EU has dropped significantly by 12.79%. Yet, EU’s imports from India and Vietnam have increased by 5.75% and 3.73% respectively in value terms. Though volume-wise, EU’s import from all the top countries has shown negative growth.
RMG workers’ wage board holds first meeting; no proposal made
The first meeting of the minimum wage board for garment workers ended Wednesday without any proposal for workers’ monthly salary.
The meeting was held at the Minimum Wage Board office premises in Dhaka.
The board members are expecting that they will be able to propose a certain amount as the minimum monthly salary for more than four million garment workers.
On the first day of the meeting, the board members mainly introduced each other, said Liaquat Ali Mollah, chairman of the wage board.
On 9 April, the labour and employment ministry formed the four permanent-member new wage board, headed by Senior District Judge Liaquat Ali Molla, to review RMG workers’ wages.
The three other members are – Bangladesh Employers’ Federation representative Moksud Belal Siddiqui, workers’ representative Jatiya Sramik League leader Sultan Ahmed, and independent member Dhaka University Professor Md Kamal Uddin.
Besides, the ministry also announced the names of two members – former president of the Bangladesh Garment Manufacturers and Exporters Association Md Siddiqur Rahman and Bangladesh National Garments Workers Employees League President Sirajul Islam Rony – as owners’ and workers’ representatives respectively.
As per the Bangladesh Labour Act and labour rules, the government will form a new wage board every five years and it will set a new wage structure.
In December 2018, the government-nominated board declared a new pay structure fixing the minimum wage at Tk8,000 per month.
Since early 2022, RMG workers had staged demonstrations several times demanding the formation of a new wage board and Tk24,000 as the monthly minimum wage, citing skyrocketing inflation in the country.
Our workforce must match our ambitions
It is no secret at this point that Bangladesh intends to become a prosperous, high income country in the next two decades. For the nation to be successful in arguably its most ambitious undertaking till date, many changes must be prioritized — among which, upskilling our labour force is among the most pressing needs.
With technological changes occurring at an exponential level and the Fourth Industrial Revolution (4IR) threatening to change work as we know it, Bangladesh keeping up with how the future of work evolves is paramount to it fulfilling its goals.
What is particularly noteworthy is that our workforce also realizes that in order to remain relevant and productive, they must evolve and be equipped with skills and training that is reflective of present times — more than 80% workers of RMG factories in Bangladesh think they need more training to face challenges of 4IR, according to a survey of the Bangladesh Institute of Development Studies (BIDS).
Bangladesh’s RMG industry continues to be the dominant export product for the nation, but it is no secret that it is inexpensive labour that is the hallmark of our industry, and not high skill. Moving forward, in order to address the skills gap that threatens to only widen, relevant training is required in the form of skill enhancement programs.
The authorities concerned and all relevant stakeholders must take this issue with the seriousness it warrants. At the speed with which work is changing, and entire industries being threatened due to automation, artificial intelligence, and other emerging technologies, it is only when our workforce aligns with our ambitions will we become successful in becoming the prosperous nation we intend to be.
BGMEA President: It’s time to move beyond volume, focus on value addition
BGMEA President Faruque Hassan has emphasized the need for a strategic shift from volume-based production to value addition in order to foster sustainable growth of the readymade garment industry in Bangladesh.
“This transition is very much important for long-term success of the industry,” he said.
He came up with the observations while speaking at the opening ceremony of a training session on ‘creating high-end fashion heritage materials from Bangladesh’ held at BGMEA Complex in Uttara, Dhaka on Wednesday, reads a press release.
The training initiative is a part of the High End Fashion Project (Linking Bangladesh’s Heritage Material to the International Export Market) under EIF Export Diversification and Competitiveness Development Project (TIER 2).
The training, conducted under the Centre of Innovation, Efficiency and Occupational Safety and Health (CIEOSH) of BGMEA, aims to create fashion professionals and designers with knowledge and skills necessary for developing high-end fashionable garments using heritage fabrics and materials
BGMEA Director Neela Hosna Ara also spoke at the opening ceremony.
In his address, BGMEA President Faruque Hassan said while Bangladesh had achieved remarkable progress in terms of garment exports, it was now imperative to move beyond volume and pay attention to value addition.
By focusing on value addition and high-value fashion items, the industry could enhance its competiveness, explore new opportunities and thus secure sustainable growth in the context of changing global trends, he added.
Stressing on the importance of developing garments linking rich culture and heritage of Bangladesh with fashion, he said it would help to boost the export earnings and enhance the image of Bangladesh as a hub of high-value garment manufacturing.
When people in other countries will wear apparels made using our homegrown heritage materials like Muslin, Jamdani, Khadi, Silk, Monipuri, the fashionable garments will represent Bangladesh’s culture and heritage internationally. Thus it will increase the brand image of Bangladesh,” Faruque Hassan said.
Renowned fashion designer and founder of Chicago-based fashion brand Neval Ms. Anadil Johnson is conducting the training sessions attended by designers, pattern markers, merchandisers, weavers of indigenous textile materials and fashion and textile students.
A total of 160 professionals will be imparted intensive training on high-end fashionable collection development, sustainability issues etc.
Withdraw 10% tax on cash assistance against RMG exports: BGMEA
The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) has called for the removal of a 10% tax on cash assistance provided for the export of ready-made garments in the upcoming budget.
According to the BGMEA, as cash assistance is not considered business income, it is reasonable to exempt it from taxation.
The association emphasised the need for policy support from the government to ensure the sustainability of the export-oriented apparel business.
To enhance the business environment and reduce the overall “cost of doing business,” the BGMEA recommended measures such as uninterrupted electricity and gas supply, decreased value-added tax (VAT) and tax rates, single-digit bank interest rates, and the continuation of incentives for export earnings.
They also stressed the importance of prioritising simplified policies to facilitate “Ease of Doing Business” in the forthcoming budget.
Considering the current global economic instability, including the impact of the Russia-Ukraine conflict and the aftermath of the Covid-19 pandemic, the BGMEA expressed concerns shared by exporters across various industries.
They highlighted issues such as falling clothing prices in the international market due to inflation in the country, low orders, reduced prices, and insecure payments. In light of these challenges, the BGMEA expects government support through favourable policies.
The BGMEA further urged the government to reduce the tax at source for exports from 1% to 0.50% and maintain this rate for the next five years. They also proposed that garment industries be subject to a corporate tax rate of 12%, excluding specific types of income like Gain on Assets Disposal, Sub-contract Income, and miscellaneous expenses when assessing the sector.
Regarding subcontracting in the ready-made garment industry, the organisation recommended the implementation of tax at source based on the proposed steps at the time of subcontractor payment. They suggested treating this tax as final and, otherwise, applying a corporate tax rate of 12% during assessments.
In order to support the export business, the BGMEA proposed a reduction in the rate of income tax deduction at source from 20% to 10% for fees paid to the Exporter Retention Quota Fund (ERQ) for the growth and development of exports in the export-oriented garment industry.
Additionally, the press release highlighted the disruption in industrial production caused by the fuel crisis. The BGMEA emphasised the importance of duty concessional import of solar PV system equipment to address the energy crisis, reduce production costs, and maintain export flows.
