Industries ought to learn how to run sans tariff protection attuned with Bangladesh’s LDC graduation as banishing protective duties begins with the next budget, sources say, as probative taxing of imposts creates price distortions.
They have said the government has planned to phase out the protective trade taxes from next fiscal year budget preparatory to Bangladesh’s graduation to middle-income country.
The revenue board is likely to waive duties like Supplementary Duty and Regulatory Duty (RD) on import of fish, frozen stakes, some fabrics such as T-shirt, jacket and other men’s-wear items in the FY 2024 in the first phase, sources concerned said.
The National Board of Revenue (NBR) has sorted out more than 2,000 tariff lines to waive SD and RD by FY 2026—the graduating year.
More than 200 of the products, which are currently under 20-percent SD and 3.0-percent RD, may see the cuts in the upcoming budget.
These two duties have been imposed to help the local industry stay competitive by way of checking influx of imported products at cheaper prices.
Economists and development partners have long suggested that the government reduce reliance on trade taxing by waiving such taxes.
Official sources have said the government has devised a three-year plan, until FY 2025-26, to cut down SD and RD by rotation starting from next budget.
Sectors that have already established as import-substituting may not be affected with the relaxation of trade taxes, they said.
Initially, the NBR has selected the products that have significant volumes of imports as consumers are heavily dependent on domestic production of those, they added.
The customs authority would waive RD from 47 categories of products in FY25 and SD from 91 products in phases.
In the budget for FY24, to be placed on June 1, 2023, the finance minister may also propose introduction of a minimum tax amounting to Tk 2,000 on all TIN-holders, irrespective of having taxable income or not. If the fiscal measure is approved, the concept of tax-free threshold would be under question, experts say.
At import stage, the NBR may not bring any changes on import duty of reconditioned cars. However, import taxes on elevator, escalator, and micro-woven may see an increase, while local soap, and sanitary-pad industry may enjoy extension of the tax-breaks.
Officials say some of the fiscal measures have been framed targeting to tame inflationary pressure on common people while some of the measures targeted expansion of tax net.
Dr Zaidi Sattar, Chairman of Policy Research Institute (PRI), thinks that the government can bring down inflation by waiving RD on imports.
“I have recommended complete withdrawal of 3.0-percent RD on import products in the pre-budget meeting, attended by the finance minister and other senior officials of the Ministry of Finance (MoF),” he said.
The government can meet three goals at one go by waiving RD: taming inflation, rationalization of tariffs, and protection and facilitation of export diversification with non-readymade-garment products in basket.
Export diversification is being hampered due to high protective tariff as it provides higher profit in local market compared to exports, he said.
“Currently, some 3,500 tariff lines have RD. If the government waives the RD, then it might be able to reduce inflation minimum by one-to two-percent from the existing 9.0 per cent,” he said.
Already prices of import goods have jumped by 40 per cent with the exchange-rate devaluation locally and price escalation on the international market, he mentioned.
Officials said the products selected for SD and RD phase-out are currently not imported in a large volume due to high taxes.
Impact of withdrawal of such import-prohibitive duty might be visible on the local industry if traders start importing those products on commercial basis in a large volume.
As per conditions of the International Monetary Fund (IMF) against its credit support, the government will have to shift its dependence from trade taxes gradually and collect more revenue from direct taxes.
For the upcoming fiscal year, the NBR has set a Tk 1.16-trillion target for the customs wing against Tk 1.11 trillion in the current FY.
The government realised 17.5 per cent of its targeted tax revenue from NBR SD in FY21 which was 15.8 per cent in FY22.
In FY20, the government collected 14.8 per cent of its tax revenue from SD followed by 16.5 per cent in FY19.
In the current fiscal year, the NBR targeted collecting Tk 585.24 billion worth of SD against last FY’s collection of Tk 545.03 billion. In FY21, the NBR collected SD worth Tk 385.75 billion.
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