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VAT on local yarn to hit hard primary textile sector

As of now, Bangladesh is able to meet 80% demand for fabrics for the export-oriented knitwear sector. While the local fabrics manufacturers are meeting 50% demand of the woven sector. As a result, the country’s $30 billion apparel sector is witnessing double digits growth.

VAT on BD local yarn
Figure: If the government implement the proposed 5% VAT on yarn, the manufacturers have to pay minimum Tk9.40 and maximum Tk23.50 per kilogram.

But the proposed budget for the fiscal year 2019-20 poses a great threat for the country’s primary textile sector, the strong backward linkage industry of the apparel sector as the government proposed to impose 5% VAT on locally produced yarn.

On top of that, the government has imposed 5% advance tax on import of textile machinery and spare parts, which would increase the cost of establishment and production cost will go up.

In this context, the primary textile sector people are gearing severe negative impact on the sector. Considering the present context of the industry, industry people want a revision of the budget proposal.

“Yarn manufacturers are facing trouble due to the illegal import of yarn through miss-declaration, while the imposition of VAT will increase the prices of yarn. As a result, people would not be interesting to buy local yarn,” Bangladesh Textile Mills Association (BTMA) President Mohammad Ali Khokon told the Textile Today.

“If the government implement the proposed 5% VAT on yarn, the manufacturers have to pay minimum Tk9.40 and maximum Tk23.50 per kilogram.”

“Yarn manufacturers are facing trouble due to the illegal import of yarn through miss-declaration, while the imposition of VAT will increase the prices of yarn. As a result, people would not be interesting to buy local yarn.”

Bangladesh Textile Mills Association (BTMA) President Mohammad Ali Khokon

Currently, the manufacturers are paying TK3 per kg as VAT. So considering the present context of the industry, we are requesting the government to withdraw VAT on local yarn for the sake of the industry, said the BTMA President.

Meanwhile, economists have urged the government to think about the VAT as it would leave the country’s apparel makers in tough price competition in the global export market.

“Strong primary textile sector is an advantage for the Bangladesh RMG sector, which reduces lead time and provides quality fabrics,” AB Mirza Azizul Islam, an eminent economist told the Textile Today.

So, for the betterment of the apparel industry, the VAT on local yarn should be rational, said Islam.

Besides, the proposed advanced TAX on import of machinery will discourage investment as it would increase the cost of production and establishment.

“The government wants to increase investment in the industrial sector. But it has proposed to impose 5% advanced TAX on textile machinery, which would make investment expensive and non-profitable,” Khokon.

Currently, the textile sector is paying 1% TAX on import of textile machinery, which is one kind of incentives.

As a result, the investment would be hindered and entrepreneurs will feel discouraged to make new investment or expansion,” said Khokon.

So considering the present context of the sector, we are requesting the government to exempt the advanced TAX on machinery and spare parts imports to encourage investment, said the business leader.

As per the BTMA data, from 2014 to 2018, local entrepreneurs invested an average of Tk13.80 bn per year in the primary textile sector.

According to Bangladesh Bank (BB) data, in 2017, Bangladesh’s textile and apparel sector received foreign investment worth $421.68 million, which is 15.70% higher than $364.44 million in 2016.

As per the BTMA, there are 430 yarn manufacturing mills, 802 fabrics manufacturing mills, and 244 dyeing-printing finishing mills in Bangladesh, along with 32 denim fabrics manufacturing mills and 22 home textile manufacturing mills.

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

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