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.

The country’s readymade garment (RMG) export to major destinations including European Union, Canada and some other non-traditional markets witnessed negative growth during the first quarter (Q1) of the current fiscal year (FY 2019-20). However, the export to the United States of America during the July-September period witnessed a meager growth of less than 1.0 per cent, according to data. Apparel exporters attributed to a number of factors including sluggish EU economy, the trade tension between China and US and recent declining price trend of raw materials, especially cotton and yarn, for the poor performance of the RMG exports. Bangladesh’s RMG export to Belgium, Germany, Italy and Spain witnessed negative growth of 1.12 per cent, 7.37 per cent, 11.80 per cent and 2.08 per cent respectively during the period, according to Bangladesh Garment Manufacturers and Exporters Association (BGMEA). On the other hand, apparel shipments to major EU countries like Denmark, France and the Netherlands maintained sluggish growth of less than 2.0 per cent while exports to UK and Poland grew by 5.76 per cent and 16.25 per cent respectively, according to data. Bangladesh fetched US$ 4.94 billion from apparel exports to EU, marking a 3.21 per cent negative growth compared to the earnings of $ 5.11 billion in the corresponding period of last FY. About 61.43 per cent of the total RMG exports ($ 8.05 billion) shipped to EU during the period. US imports of apparel items from Bangladesh during the first quarter grew by 0.46 per cent to $ 1.49 billion. US accounted for 18.50 per cent of the country’s total apparel exports. The country fetched $ 255.22 million from garment exports to Canada which is 1.55 per cent lower than the shipment of the corresponding period of last fiscal. When asked, BGMEA president Dr Rubana Huq said the number of work orders had declined followed by global impacts like falling consumption, China and US trade tension, and devalued currencies in major competitor countries. The country is facing tough competition with Vietnam and Vietnam is getting a fair share of orders, she noted. Echoing the BGMEA president, managing director of Rising Group Mahmud Hasan Khan said the consumers are purchasing less amid fears of possible recession in the EU countries and due to Brexit. “Bangladesh is also becoming less competitive mainly because of devalued currencies in our competitor countries,” he added. Besides, RMG exports to major non-traditional potential markets also decreased during the period. Exports to Australia, Brazil, Chile, China, South Africa and Turkey declined by 1.83 per cent, 26.07 per cent, 5.30 per cent, 1.65 per cent, 10.82 per cent and 39.87 per cent respectively in July-September period of the current fiscal year. Exports to India, Japan, Korea, Mexico, Russia, however, witnessed growth ranging from 3.58 per cent to 35.54 per cent. Talking to the FE, Sayeed Ahmad Chowdhury, general manager operation of Square Textile Ltd., said that in the recent months, buyers have hold placing their orders followed by a declining trend of price of raw materials, especially cotton and yarn. As a result, the flow of orders declined in last few months, he added.

Exports of T-shirts, the most exported garment item, have declined significantly in the first quarter (July-September) of the FY 2019-20 due to depreciation of currency within the competing countries and low work order, and low price offered by buyers, said industry insiders. According to the Export Development Bureau (EPB) statistics, exports of T-shirts witnessed 7 per cent fall in the first quarter of the FY 2019-20, compared to the same period of the previous fiscal year. According to the EPB figures, T-shirts exported to different countries in the first quarter (July-September) of the fiscal year 2019-20 was worth USD1.34 billion. But, during the period (July-September) of the last financial year (2018-19), the export was worth USD1.45 billion. Mohammad Hatem, second vice president of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), told The Independent that T-shirts were very popular in Western countries and their demand remained almost the same throughout the year. However, from May to August of the year, the work order for the product was somewhat low. In the current financial year, the work order for T-shirts was lower than usual. As a result, the export of Knit Sector T-shirts has dropped due to the seasonal context, mainly due to the work order crisis. The export of T-shirt has declined mainly due to the depreciation of the currency within the competing countries. Most of the orders of knit products have gone to Pakistan and India, said Hatem. High-end knit products have gone to Cambodia and Vietnam because their currency depreciated against dollar, added Hatem. Moreover, the existing buyers have lowered their purchasing price around 10 per cent during the last three months, he said. According to the first quarter’s export figures for the last five financial years, T-shirt exports have increased steadily over the last three financial years. But, in the current financial year, it has declined. T-shirts exported in the FY 2016-17 was worth USD1.17 billion. After that, T-shirt exports have increased in both fiscal years 2017-18 and 2018-19. In those two financial years, T-shirts exported was worth USD1.27 billion and USD1.44 billion respectively. T-shirt exports have dropped by USD1.35 billion this fiscal year, according to EPB. It is learnt that 80 per cent of the country’s export earnings come from the garment sector. During the last four decades, the industry has gradually become the driving force of the economy. But the basis of this driving force is mainly in five to six products. According to EPB and garment industry, garments are exported from Bangladesh mainly under two categories. One is the knit, the other is the oven. In these two categories, mainly five types of goods are exported. These are T-shirts, trousers, shirts, jackets and sweaters. According to Export Promotion Bureau, export earnings from the RMG sector in the first three months (July-September) of the FY2019-20 fetched USD8.05 billion, decreased by 1.64 per cent to USD8.19 billion in the same period of the FY 2018-19. Exporters have said readymade garment exports in August 2019 fell by 1.64 per cent because of Eid vacation as most of the factories remained closed for at least seven days. Moreover, some of the factories remained closed even for 12 days which influenced the export performance.