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Tax sops harbour inept, hurt consumers

Tariff protection costs consumers US$70.6b between FY 2013 and FY 2017

Jubair Hasan | February 20, 2019 00:00:00

Consumers end up paying higher even as local industries enjoy tax benefits as a protection measure from the government.

The government provides such support to local enterprises by imposing tariff on the imported goods and encourages import-substitute production locally.

But in many cases, prices of such consumer items were found to be much higher than those in the international market.

This correspondent came up with the findings after analysing market prices of some consumer goods like air cooler, carbonated drinks, rice, plastic products, confectionary items, ceramic goods, rod, cement and pharmaceutical products.

More than 1000 products are brought under the existing tariff policy with mostly for the domestic market where the consumers are gradually getting larger thanks to steady growth in people's income.

One case in point is rice. The government slapped a 28 per cent import duty on rice to protect local farmers. Despite that, retail price of the staple keeps rising in the market without any valid reason. This is hurting consumers.

The retail price of per tonne of coarse rice in Dhaka is US$ 470 (Tk 40 a kg) while that of the same variety in the international market is US$ 400.

Cashing in on the high tariff (38 per cent import duty), local iron rod producers have completely been dominating the market.

But consumers have to pay between Tk 57,500 and Tk 66,500 for a tonne of the rod (500watt or 72grade) of different companies.

The price of the key construction material of the same grade hovers between Tk 42,000 and Tk 50,000 in China, Pakistan, Myanmar, the Philippines, Thailand and India.

However, despite tax sops, many locally produced goods are priced higher because of the increased cost of other factors of production.

Deputy Managing Director of BSRM Tapan Sengupta, however, claimed that the prices of MS rod have been rising in the global market in recent months.

Except the cost of raw materials, there are other expenses that the producers are required to make before reaching their products to the retailers, he said.

He said expenses such as transportation costs and port handling charges have been going up while the exchange rate and lending rates are also on the rise. "These are the other factors that need to be considered before fixing the price of any locally produced commodity," he added.

Retail prices of one tonne of air cooler produced by the local companies range from Tk 44,000 to Tk 50,000.

In contrast, the imported product of the same capacity hovers from Tk 45,000 to Tk 65,000 in the local market.

Consumers in other countries can buy the same product in much lesser prices. For example, air cooler (one tonne) of various global brands is available at less than Tk 42,000 in Pakistan, the Philippines, India and Sri Lanka.

Although the scenario is slightly different for life-saving drugs, there are some items, where price overshoots the international rates.

For example, a single tablet of ibandronic acid largely consumed by elderly people is selling at Tk 195-Tk 900 in India while its price ranges from Tk 400 to Tk 2,560 by local companies.

While 10-piece tablet (500mg) of tetracycline generic is available at Tk 15.65 in India but the price is Tk 22.90 in Bangladesh.

Officials, economists and consumer rights activists said higher tariff on imported products has twin troubles: The government loses a substantial amount of revenues for providing duty benefits to the local companies, but consumers are not benefiting from it.

They suggested a time-bound tariff protection plan instead of the perpetual one, which would put pressure on local industries to grow within a certain time.

Officials at the National Board of Revenue (NBR) said the government like many countries gives protection in various forms to the local industries for making them competitive enough to sustain in the global race for grabbing markets.

As part of the process, many potential industries enjoy different forms of fiscal benefits like reduced rate or duty waiver of imported raw materials and Value Added Tax (VAT).

The board imposes prohibitively high supplementary duty (SD) and regulatory duty (RD) on the imports of the same products.

Apart from such facilities, some sectors numbering 10 to 14 are enjoying tax holiday on different terms.

Seeking anonymity, a revenue board official said they set tariff considering the potential of an industry and allow them to grow enough to compete with the global players.

"Yes, it is true that many industries despite having potentials failed to grow at the expected level even after enjoying duty benefits. It needs to be looked into," he said.

According to a study of the Policy Research Institute (PRI), a Dhaka-based think-tank, the average protection tariff on import and import substitutes in Bangladesh was 26.6 per cent, which is much higher than many other regional comparators.

The study said tariffs range from 40 per cent on food supplements to 156 per cent on carbonated beverages and air-coolers.

Domestic consumers pay 70 per cent more than what is available in the international market to buy imported and import substitute products due to high tariff protection.

Between FY2013 and FY 2017, the total protection cost to consumers work out to a sustainable amount of US$70.6 billion, according to the study.

Chairman of the PRI Dr Zaidi Sattar said Bangladeshi consumers pay the highest prices for most consumer goods, as imports are subject to the highest protective tariff rates in the region.

He said about 9.0 per cent of NBR revenue originates from taxes on imported consumer goods that are subject to protection.

Noting that protection restricts importation, Dr Sattar said the revenue collected would have been higher if protective import taxes were lower.

"Tariff protection is a zero-sum game. Producers gain what consumers lose," he said. "A time-bound tariff protection can be offered to help the local industry grow. If any industry fails to thrive within the period, that can be abandoned," he added.

"Ultimately, it is consumers that bear the burden of these tax instruments as producers pass on the tax burden to consumers in the form of higher tariff-induced prices including mark up," he said.

Member (trade remedies division) of state-controlled Bangladesh Tariff Commission Dr. Mostafa Abid Khan said Bangladesh is a country where the revenue board sets tariff structure and realises revenue.

He said the tariff structure was made without conducting any sector-specific comprehensive study, which is problematic.

"There are many industries which have been enjoying protection for years but their growth is not satisfactory. Rather, some of the industries became dependent on protection," he argued.

He said there are many tools to protect the local industries like antidumping, countervailing and safeguard measures but these are not followed in this country.

"Public hearing with all the stakeholders, including the consumers, is a must behind the logic of protection. Tariff should be treated as a tool of trade policy not revenue policy," he added.

Ghulam Rahman, president of the Consumers Association of Bangladesh (CAB), said neither the country's political parties nor the civil society think about the interest of people.

He also said that due to protection the prices of MS rod and cement went up in the domestic market while the prices of the items were going down in the international market.

This type of protection cannot safeguard the interest of consumers, he said.

"It is never said that the budget should be consumer-friendly. Rather, it is said that the budget should be business-friendly and industry-friendly, he said. "Political parties also do not talk about the interest of consumers."

China also faced the similar problem, which prompted the nation with the world's largest consumer base to bring some changes in its tariff policy.

When contacted via email, Professor Liu Baocheng, Center for International Business Ethics of the University of International Business and Economics, Beijing, said China has to react to the global pressure to raise its import for sweeping tariff reduction.

China also begins to realise the side effects of protracted tariff protection, which has spoiled certain industries and prompted shopping spree by Chinese outbound tourists, he said.

Frequent adjustment is now being made based on three factors: Compliance with the WTO requirement, pressure from major trading partners such as the EU and US, and maturity level of Chinese companies, he added.

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