The government is set to reduce the source tax on local cotton purchases to 0.5 per cent from the current 1.0 per cent, a move aimed at easing input-cost pressures on the country's textile sector.
The proposed measure will also extend the reduced 0.5 per cent source tax rate to a wide range of agricultural and industrial raw materials procured through local letters of credit (LCs), according to finance ministry officials involved in the budget preparations.
The expanded list of commodities includes raw hides, organic fertilisers, pesticides, poultry feed, soybean meal, molasses, oilcake, and handicraft products.
Officials said the proposal had already been approved at a high-level meeting chaired by Prime Minister Tarique Rahman and subsequently vetted by the Ministry of Law.
Finance Minister Amir Khosru Mahmud Chowdhury is scheduled to place the national budget for fiscal year 2026-27 at the Jatiya Sangsad tomorrow (Thursday).
Welcoming the proposed tax cut, Bangladesh Textile Mills Association (BTMA) Director Khorshed Alam called the measure a step in the right direction, although he urged further support to strengthen domestic cotton production.
"The source tax on local cotton should be withdrawn altogether," he said, adding that the government should provide direct incentives to cotton growers to encourage expanded cultivation.
He noted that current cotton yields of around 10 to 12 maunds per bigha could more than double with the introduction of hybrid or high-yielding varieties and improved farming practices.
"If that happens, national production could rise to 400,000-500,000 bales, resulting in substantial foreign exchange savings," he said.
Snehasish Barua, partner at Snehasish Mahmud & Co., said the proposed reduction would lessen the tax burden on local businesses and improve their competitiveness.
"It is a positive move that will help reduce business costs for local enterprises," he told The Financial Express.
Bangladesh remains the world's largest importer of raw cotton. According to National Board of Revenue (NBR) data, the country imported around 7.82 million bales of cotton in the latest fiscal year.
Domestic production currently ranges between 153,000 and 200,000 bales from about 45,000 hectares of land, meeting less than 2 per cent of the country's total demand.
As a result, Bangladesh remains heavily dependent on imported cotton to supply its spinning mills, which produce yarn for the country's garment industry. The sector earned $39.35 billion from ready-made garment (RMG) exports in FY2024-25.
The government has also proposed reducing the withholding tax to 0.5 per cent on payments made or credited against local LCs and other financing arrangements used to procure essential commodities.
The proposed facility will cover rice, wheat, potatoes, fish, meat, pulses, edible oil, sugar, jute, raw tea leaves and spices, including pepper, cardamom, cinnamon and cloves.
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