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RMG bags most of Tk 348b import-tax waiver in FY ‘17

PRI survey suggests giving the SBW facility to other sectors for diversifying export basket to boost trade

Doulot Akter Mala | December 12, 2017 00:00:00

Country's export industries enjoyed import-tax benefit worth Tk 348 billion through special bonded warehouse (SBW) facility alone last fiscal year, and RMG took almost all.

Such a finding came in a study conducted by the Policy Research Institute (PRI), which also stated that the tax exemptions accounted for 77.18 per cent of the aggregate customs-revenue collection in the past fiscal year (FY 2016-17).

The readymade garment and knitwear sector enjoyed the lion's share of the tax-exemption perks as they took Tk 336 billion or 74.37 per cent of the year's customs-revenue receipts for the exchequer.

The National Board of Revenue (NBR) offered the tax waiver for duty-free import of raw materials so that the exporters could import inputs at world prices.

Dr Zaidi Sattar, chairman of PRI, presented facts in a study paper on 'Export Competitiveness and Diversification with SBW' recently before experts, policymakers and exporters.

The study showed that a large volume of tax waivers through SBW helped boost country's export earnings, amounting to US$35 billion in the FY 2016-17.

The RMG-knitwear twin enjoyed tax exemption worth Tk 336 billion out of their total import value of Tk 477 billion.

The apparel exporters enjoy bonded-warehouse facility under the Customs Act 1969 for duty-free import of fabrics, yarn and other accessories on condition of exporting finished goods made from those imports.

The policy researchers noted that the SBW could contribute to diversifying export basket if expanded for non-RMG sectors, too.

"RMG sector makes up 82 per cent of the export basket that was $28 billion out of total export earnings worth $35 billion," it said.

Non-RMG exports are in a disadvantageous position compared to the apparel sector, the PRI added.

Based on IMF short-run export-supply elasticity, the PRI found SBW as 5.0 per cent subsidy equivalent that gives 10.75 per cent export boost.

In 2013-to-2017 period, non-RMG exports ranged between $5.0 billion and $7.0 billion.

The study found effective SBW could have boosted non-RMG exports by approximately $1.5 billion a year.

Responding to FE queries, Dr Zaidi Sattar said SBW is a mechanism to provide duty-free (i.e. world-priced) inputs to exporters with a view to enhancing export trade.

"Our estimates show that total duty exemption through SBW system was an amount equal to 77 per cent of total customs revenue. The more we export under this system the greater will be the exemption," he said.

To compete on the global market in a level playing field, Bangladeshi exporters need to be ensured imported inputs at world prices, he said.

"Given our tariff regime there would be little or no RMG exports without SBW. Same is true for non-RMG exports most of which -- according to our surveys -- do not have access to SBW to the same extent as RMG. Hence, as non-RMG exports are inhibited, export diversification is not happening," he said.

PRI and leading exporters now strongly feel that SBW should be extended to all exports without discrimination, he added.

He suggested modernisation and automation of the SBW in this regard.

Talking to the FE, a senior customs official said the bond commissionerate of the NBR offers the duty-free facility after physical inspection of the factories.

There are some policy contradictions between government agencies that discourage non-RMG exporters from applying for the bond licence.

Frozen foods, processed foods and some other industries faced with problem in importing duty-free raw materials under SBW, he added.

The official, however, admitted that the customs officials make cautious move in offering the duty-free benefit due to several incidents of abuse of bond licence.

"In case of abuse of the bond facility, the customs officials concerned will be liable for the loss of revenue to the public exchequer," he said.

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