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Textile and RMG sectors deserve special care in the next budget for economic recovery

Survival of the sectors during the pandemic can save thousands of jobs

The backbones of the country’s economy textile and garment sectors have been going through a very tough time for severe fallouts of the COVID-19 that jolted the global economy, particularly the demand for apparel items.

Textile-RMG-special care-budget-2021-22
Figure 1: Bangladesh RMG needs special care in the next budget for economic recovery.

Bangladesh is the second-largest apparel supplier in the global garment supply chain with exporting $34.13billion in fiscal 2018-19. The magnitude of fallouts of the COVID-19 on the textile and garment sectors could be understood if we can see some figures.

For instance, Bangladesh lost $6.19 billion in garment export in fiscal 2019-20 because of the fallouts of the COVID-19. In fiscal 2019-20, Bangladesh’s export of garment items declined to $27.94billion from $34.13billion in fiscal 2018-19, according to data from the Export Promotion Bureau (EPB).

On the other hand, the primary textile sector like weaving, spinning, finishing, dyeing and washing sector lost Tk20,000crore in 2020 because of missing two most important sales events including the Pahela Baishakh and Eid-ul-Fitr as most of the mills and factories were shut down due to lockdown and for COVID-19.

Figure 2: RMG scenario in COVID depicting the need for govt. support in the coming budget.

Similarly, the primary textile sector has experienced an almost similar kind of situation in 2021 because of the second wave of the COVID-19. The garment sector which was reviving from the first wave of the COVID-19 has faced the fallouts of the second wave when many export destinations in Europe and the USA went for the lockdown to stop the spread of the COVID-19.

The government has also allocated the stimulus packages, policy supports and incentives to the garment and textile sectors mainly to keep the business and jobs afloat during this crisis moment when a good number of workers have lost their jobs and the mills and factories faced the work order cancellation and suspension.

Bangladeshi garment suppliers have faced work order cancellation and suspension worth $3.18 billion, although the sellers, government and international communities have reinstated some 90 percent of those work orders so far after intense negotiation.

However, still there are uncertainties in payments as some international clothing retailers and brands have not been respecting the international trade norms.

The local factory owners, millers, traders, exporters and trade body leaders in the garment, textile, chemicals, terry towels and accessories sectors have demanded some policy supports and incentives in the budget for fiscal 2021-22 to offset the losses during the pandemic time.

The textile millers and garment manufacturers have already demanded that the government impose a value-added tax (VAT) of Tk 3 on the sales of every kilogram (kg) of all kinds of yarns, including that of manmade fibers, to facilitate product diversification.

Currently, the rate has been set by the National Board of Revenue (NBR) on sales of yarn made of cotton fibers inside the country. But millers who produce yarn from manmade fibers have to pay Tk 6 per kg as VAT on sales.

Similarly, millers who make fabrics from manmade fibers have to pay a 5 percent VAT at the production level whereas those using cotton fibers need not.

Figure 3: RMG and textile millers’ demand in the coming budget.

Such kind of discrimination has been acting as a barrier in product diversification, discouraging manmade fiber importers.

In Bangladesh local yarn and fabrics manufacturers are very much dependent on cotton fibers, using it in a mix where manmade fibers account for just 20 percent. However, the international scenario is different. In the global fashion industry, 28 percent of the mix is cotton fiber.

The government needs to fix a uniform rate on sales of all kinds of yarn and fabrics said Mohammad Ali Khokon, president of Bangladesh Textile Mills Association (BTMA) in a pre-budget meeting with the National Board of Revenue (NBR) recently.

In this budgetary speech, Khokon also demanded a reduction of duty on the import of chemicals that are used to operate the Effluent Treatment Plants (ETPs).

The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) demanded the government reducing source tax to 0.25 percent from the existing rate of 0.50 percent for at least five years.

The garment makers also demanded the government for the continuation of the current corporate tax at 10 percent for the green garment factories and 12 percent corporate tax for the normal garment factories for the next five years.

The primary textile millers also demanded the withdrawal of a 5 percent advance tax on the import of polyethylene terephthalate (PET) chips which are used to make yarn in the production of garment items.

They also demanded the withdrawal of a 10 percent tax on a 4 percent cash incentive provided against export receipts.

Among their major demands, the textile millers also urged allowing duty-free import of spare parts of textile machinery based on certification from the BTMA.

The BGMEA demanded the withdrawal of VAT on purchases of all kinds such as expenditures on subcontracting, printing, courier services and fees on lawyers and architects for export.

The garment trade body also demanded facilities on the import of fire extinguishing products for the expansion of factory operations.

The local garment manufacturers should also be facilitated so that they can get subcontracts from factories housed inside export processing zones, said the BGMEA.

Both the BGMEA and BKMEA demanded the withdrawal of certification on the import and installation of capital machinery. They also sought relief from the submission of VAT return certificates, reasoning it was additional pressure on exporters.

The BKMEA demanded duty-free import of chemicals used in running effluent treatment plants to save the environment.

Faruque Hassan, president of BGMEA said they have already demanded another stimulus package to the government for paying the wages to the workers as the sector has been going through a difficult time.

In the first stimulus package, the government allocated Tk10,500 crore for the export-oriented sector at only a 2 percent service charge. Faruque Hassan also demanded the government for extending the loan repayment period of the first stimulus package as the normalcy did not restore in the supply chain.

Both the price fall and global consumption fall of apparel items have been squeezing the profit margin and put the sector under tremendous pressure whereas the cost of production is increasing nearly 18 percent year by year, he said.

Therefore, the sector needs the continuation of the government’s policy and financial supports in the upcoming national budget, Faruque Hassan also said.

Mohammad Hatem, senior first vice-president of the BKMEA also said for the continuation of corporate tax at 10 percent for green factories and 12 percent for non-green factories for the next five years.

He also demanded the government for allowing the duty-free import of chemicals to be used for running the Effluent Treatment Plants (ETPs) for saving the environment. Hatem urged the government to the withdrawal of 10 percent tax on the cash incentive paid on the total receipts from export to encourage the exporters.

The removal of the option of certification on the installation of the capital machinery from the customs department as the millers and factory owners import capital machinery with paying 1 percent duty, Hatem said.

Abdul Kader Khan, president of Bangladesh Garment Accessories and Packaging Manufacturers and Exporters Association demanded the reduction of corporate tax to 10 percent for green garment factories and 12 percent for normal factories.

Currently, the garment accessories and packaging factory owners pay 32.50 percent corporate tax although they contribute a lot to the production of garments in the country by supplying nearly 90 percent of accessories and packaging, Khan said.

The accessories industries have grown in the country over the last two decades with the thriving of the garment sector.

Accessories and packaging industries play a major role as backward linkage industries because previously Bangladesh was dependent on the import of the necessary accessories like zipper, button, interlinks, packages and value-added items for garment production.

“We want the same corporate tax facility at 10 percent for the green garment factories and 12 percent for normal garment factories as we are also contributing to the apparel export,” Khan also said.

If anyone has any feedback or input regarding the published news, please contact: info@textiletoday.com.bd

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