A move is underway to reduce the gap in duty structure between the products imported by export-oriented industries under the bonded warehouse facility and those by commercial importers to thwart large-scale abuse of the duty-free facility by the former.
The authority is planning to gradually cut the tax difference between products imported under bonded warehouse facility and the commercially imported ones, officials said.
According to the NBR, the government loses around Tk 580 billion in duties a year due to misuse of bonded facility.
The Customs intelligence team has found that putting a check on the misuse of the bonded warehouse facility only through enforcement is quite difficult, said director general of the Customs intelligence and investigation directorate Dr Moinul Khan.
There must be policy measures to support the enforcement, he said.
The Customs Intelligence (CI) team found some 15 export-oriented industries evading Tk 3.42 billion in duties through selling of bonded products in local market in last eight months (July-February) of the current fiscal year.
The CI has initially prepared a proposal to cut Value Added Tax (VAT) at import stage on TPMC (thermoplastic moulding compound), a basic raw material of plastic goods, he said.
There are other vulnerable items including paper and fabrics that are also prone to misuse, but those are under review considering its sensitivity due to local production, Dr Khan added.
Export-oriented industries are enjoying duty-free import facility of raw materials under the bonded warehouse facility while other commercial importers have to import
the same paying high duty.
It has been alleged that many of the export-oriented industries are disposing of the duty-free imported products in the local markets at cheaper prices creating uneven business competition for the commercial importers.
Customs officials said the wide gap between the duty structure fuels the tendency to abuse the duty-free facility as profit level remains high for the businesses.
They said review of the existing policy measure may check duty evasion through sale of duty-free products in the local markets.
Plastic gains, printing and packaging materials, fabrics, garments accessories and paper are the most vulnerable items that some exporters import under bonded warehouse facility and sell those in the local markets.
Through policy changes, the NBR wants to make the sale of duty-free products in local market less profitable to the traders.
Talking to the FE, Secretary to the Internal Resources Division (IRD) and NBR Chairman Md Nojibur Rahman said the government can build two Padma bridges if it can check abuse of the bonded warehouse facility.
Genuine importers are facing uneven competition and market is being distorted due to abuse of the duty-free facility, he added.
"Recently, we have got assurance on getting all-out cooperation from the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) and the Bangladesh Garments Manufacturers and Exporters Association (BGMEA) to check the abuse," he said.
FBCCI president Abdul Matlub Ahmed said iron, paper and plastic are three products most vulnerable to misuse of the bond facility.
"Commercial importers are taking extra load on import of their products along with payment of high duty and taxes," he said.
There must be vigilance on both sides to prevent hassle by the Customs officials and check misuse of bonded warehouse facility by exporters, he added.
Export-oriented industries, mainly RMG sector and its linkage industries, enjoy duty-free import of raw materials required for production of export items on condition that they will produce finished goods using the raw materials and then export the products.
Sale of bonded products at the local market is prohibited.
Dr Zaidi Sattar, Chairman of the Policy Research Institute (PRI) said main imports of RMG under special bonded warehouse facility are intermediate inputs such as yarn and fabrics, with total tariff incidence of 30-37 per cent and 65-90 per cent, respectively, when imported by commercial importers.
"The incentive to abuse the system through leakage of special bonded warehouse facility through imports is, therefore, high. However, I would like to believe that RMG exporters today are focused more on earning income through exports rather than through leaking bonded imports in local markets. The incidents of abuse of this facility cannot be too widespread, as was the case in the 1980s," he said.
High duties on fabrics and yarn are aimed at protecting domestic textile industries, which produce for the local markets, not exports, he said.
"Note that 15 per cent VAT, which is a trade neutral tax for all imports, is applied as a protective tax (applied on imports but not on domestic production) on yarn and fabrics! Fortunately, we have seen the rapid growth of export-oriented backward linkage textile industries (which supply deemed exports of yarn and fabrics to RMG) which do not need or seek tariff protection. The old-time textile industries are doomed to remain uncompetitive and will continue to need high protection to survive, at the expense, of course, of poor consumers of Bangladesh who seem to lack voice in our protection regime," he said. Lowering the duties on fabrics and yarn will surely reduce the incentive for abuse, Dr Sattar said.
It will benefit commercial importers and consumers at the expense of old-time inefficient textile mills, he added.
Does the NBR have the necessary political backing to deal with an entrenched interest group, he questioned.
"A possible solution to the problem is to take recourse to full automation of the special bonded warehouse facility, making it completely transparent and efficient. When fully functional, that would eliminate leakage regardless of the level of duties. As far as I know, the donor community has been waiting with bated breath to support such an endeavour," Dr Sattar said.
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