Over 100 RMG units vanish after availing bonded warehouse facility

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Doulot Akter Mala The latest findings by the customs' authorities have indicated the "disappearance" of nearly 110 readymade garments (RMG) and backward linkage companies after availing the duty-free benefit under the bonded warehouse facilities. The companies, located in and around Dhaka, obtained licences for duty-free import of the raw materials on condition of making exports of outputs using the same as inputs but now they are found to be out of scene, sources said. The customs authorities under the National Board of Revenue (NBR) have also frozen the bank accounts of some 97 companies due to abuse of the facility or violation of the bonded warehouse rules. Customs bonded warehouse comissionerate of the Dhaka launched the crackdown following the concern, expressed by the government's high-ups, over abuse of the bonded warehouse facilities by some companies. Authorities have also suspended bond licences of some 153 exporters and lodged certificate cases against 14 companies, according to the latest data of customs. Sources concerned said the customs authorities have taken measures against the 'exporting' companies as they failed to get any response despite serving several notices upon such companies. The authorities have found that 11 bond circles, out of a total of 12, have the 'non-compliant' exporters who bring duty-free products under the bonded warehouse facility without abiding by its rules and requirements. A senior tax official said many of the 'exporting' companies are reluctant to undergo the process of annual audits to assess their liabilities. They import products under the duty-free facility but the customs authorities cannot verify whether there they export readymade garments (RMG) items or not, he said. The NBR issues bond licences on the basis of recommendations of some 17 departments or bodies, in both private and public sectors. The consent of the ministry of environment as well as apex trade promotion bodies in the apparel sector like Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), is required for issuance of bond licences to any RMG exporter. Exporters Association of Bangladesh (EAB) president Salam Murshedy acknowledged the misuse of bonded warehouse facilities by some exporting and backward linkage industries. "Those who violated the law should be punished under the existing laws," he said. There may be one or two per cent of exporters who violate the rules but the whole industry cannot suffer for them, he added. He, however, suggested that the government should strengthen its vigilance teams as most of those products are being sold to the wholesale buyers in city's Islampur market. Abdus Sattar Dhali, president of Islampur Cloth Merchant Association (ICMA) and also the owner of M/S Farzana Trading, said it is true that there are some cloths in this market which the 'exporters' imported under the bonded warehouse facilities. "Entrance of such cloths is relatively lower this year than before, following the rationalisation of import duty structure for commercial importers. "I sell around 70 to 75 per cent locally produced cloths," he said. Industry insiders alleged that a section of customs officials "are involved in the process to which some corrupt businessmen take recourse, in order to sell the duty-free imported cloths in the local market." They said such clothing materials enter the Islampur market under covered vans in right under the nose of the law-enforcing personnel. Existing duty on import of cloths varies between 30 per cent and 100 per cent. Those cloths are available at a cheaper price in the Islampur and Babur Haat wholesale market. Genuine cloth importers will not be able to sale such cloths at such lower prices, upon payment of due amounts of duties. About the alleged abuse of the SBW facility, Chairman of Policy Research Institute (PRI) Dr Zaidi Sattar said special bonded warehouse (SBW) is an essential facility for the RMG sector to obtain world-priced inputs (duty-free inputs) without which they cannot compete in the world market. "The country's RMG sector would not have reached its present heights without this facility. Given the existing high tariff regime that we have, other exporters do also need this facility," he said. "Reportedly, the SBW is being abused by some exporters," he said adding that high tariffs create the incentive for leakage from the system. "There is no justification for keeping high protective tariffs on fabrics and garments when Bangladesh is now one of the world's leading exporters of garments," he added. According to customs sources, the government is offering a wide range of tax benefits to help augment the growth of the garments exports. In fiscal year (FY) 2008-09, the exporters enjoyed tax benefit, worth Tk 152.23 billion, through the bond facility. The amount increased to Tk 202.77 billion in fiscal 2009-10 and Tk 250.71 billion in 2010-11 (up to April). It would have required the exporters to pay the same amounts of taxes if the government did not allow or offer the facility. There is need for increasing the capacities of customs bonded warehouse commissionrate to check such abuses, customs officials said. "There are 6700 registered exporting companies under the Dhaka customs bonded warehouse commissionrate while it has the capacity to audit maximum 1000 companies," said a senior customs official. The exporting industries cannot stay outside the taxmen's purview as they import through obtaining licences which are recommended by dozens of regulating entities of the government and also trade promotion bodies in the private sector, he added. Some of the companies in the RMG sector may become sick due to incurring losses on their business operations, he added.