VAT waiver on local procurement

FE Team | Published: October 13, 2025 20:50:25

When competition is a key to staying in business, Bangladesh is in a dire need for exploring all the avenues for enhancing its competitive edge as much as possible. The scenario following graduation from the Least Developed Countries (LDC) makes it further incumbent on this country to go whole hog in order to adapt with the withdrawal of the duty-free access of Bangladesh products to the European Union (EU), the United Kingdom (UK). Both Free Trade Agreement (FTA) and the Preferential Trade Agreement are likely to come to an end after 2029. Aware of this, the National Board of Revenue has decided to waive value-added tax (VAT) on raw materials and services procured by exporters from local sources. However, the NBR did not do it on its own. Industry associations and exporters have long been demanding the concession. Exporters will have to meet certain compliant requirements such as making transactions in foreign currencies and ensuring the delivery is properly documented in the Utilisation Declaration (UD) or Utilisation Permission (UP).
Clearly, the arrangement is yet to meet the business people's demand. If the bonded warehouse users enjoy duty-free import concession, why should manufacturers and exporters sourcing domestic raw materials and services will have to meet complicated and at times costly requirements before qualifying for the proposed privilege? The president of the Bangladesh Knitwear Manufacturers Exporters Association (BKMEA) has cited the problem with the bonded-warehouse provision. Obtaining a bonded-warehouse licence is highly costly beyond the means of smaller firms. He argues rightly that the rules were made four decades ago when the country relied mostly on imported raw materials and services.
The firms that source their raw materials from local suppliers should be encouraged further by granting more concessions. They are not only using the local materials but also helping develop the domestic backward-linkage factories and productive units. The greater the supply of raw materials from local sources is, the stronger the domestic manufacturing base. This is a precondition for maintaining production costs low and staying competitive in international market. Well, documentation of procurement sources can be verified by means other than the conditions set for the purpose. For example, the suppliers' and procurers' inventories can be checked if those match or not.
The system should be made as simple as possible to encourage growth of smaller firms that produce raw materials for manufacturers and exporters. At no point should the importers of raw materials be favoured leaving the domestic backward linkage industry to unfavourable terms and conditions. The country needs a strong manufacturing base and the backward linkage industry in certain areas are capable of fully meeting the needs of bigger and exporting units. If the purpose is to diversify export goods and boost those of the existing manufacturers, reliance on imported raw materials has to be gradually phased out in favour of production and procurement of such goods. The government must pursue a policy of encouraging the backward linkage industry to develop into a self-sufficient manufacturing infrastructure. A small country with a large population must get its priority right. Labour is cheap here and unemployment a huge problem. Small and medium enterprises through their integration into the backward linkage chain can absorb a large number of the unemployed.