Duty-free imported fabrics find their way into local market
Sunday, 12 August 2007
Jasim Uddin Haroon
The government is being deprived of a large amount of revenue every year as fabrics imported duty-free by export-oriented garment companies find their way into the local market, according to customs intelligence sources.
Such fabrics worth around Tk 2.0 billion is found at different markets mainly in Dhaka and Chittagong, the sources added.
The sources claimed that the annual cost of such fabrics imported under "general bond facility" or back-to-back LC (letter of credit) might be nearly Tk 2.5 billion a year.
The government could earn nearly Tk 1.0 billion annually on account duty if those fabrics were brought in under commercial imports, national board of revenue (NBR) officials said.
NBR sources told the FE that only a small volume of cloth was commercially imported. The country's leading tailoring houses usually import it for their own purposes, they said.
They said there are 78 per cent duty and other tariffs imposed on commercial import of fabrics.
The NBR sources named Choinika, Gazi Tailors and Ferdous import fabrics commercially for their own show rooms.
When asked, leading cloth merchants expressed their inability to show relevant import documents.
However, the Bangladesh Bank statistics show that there was no commercial import of fabrics in fiscal 2006-07.
It shows that the country's apparel sector imported a total of US$ 2537.38 million worth of fabrics in 2006-07 under back-to- back LCs and other means.
Of them, fabrics worth $ 1864 million arrived through LCs and oven cloth worth $ 57.01 arrived through other means for garment factories.
It is found that leading fashion houses, including prominent tailors, have been using the fabrics imported under special arrangement for re-export after value addition.
One official at Ramna's Aziz Tailors said a section of unscrupulous garment factories sell fabrics to the wholesalers at Islampur. "We buy the fabrics from them," he said.
When asked director general (DG) of the Department of Customs Intelligence Jahanara Siddiqui told the FE recently that her office was well aware of the sources of woven cloths in the local markets.
"If you visit the country's different entry points, you will find the commercial import very insignificant. So, how such a large quantity of bonded cloths is available in the local markets?" she asked.
She believes local markets have such cloths worth more than Tk 2.0 billion.
Sources at different entry points like Chittagong, Benapole, Dhaka Inland container Terminal and Dhaka Airport stated that the commercial import of cloths was small in the country.
Chittagong Custom House Commissioner Farid Uddin Ahmed told the FE that he did not see commercial import of fabrics through Chittagong port.
"I don't know about the other entry points. It might be one or two consignments a year," he added.
The Chittagong entry point is believed to be the largest entry point for imported cloths.
Bangladesh Garment Manufacturers and Exporters Association (BGMEA) leaders said some officials of relevant government department, in league with a section of unscrupulous apparel businessmen, are responsible for flooding of the local market with the fabrics brought under back-to-back LCs.
On the other hand, customs officials said, the garment businessmen are taking advantage of Utilisation Declaration (UD) issued by the BGMEA on imports of required fabrics for the export-oriented garment factories.
"We don't check or make any query while we get UD issued by the BGMEA on such imports. The BGMEA officials are authorised to issue UD against export of garment", said Mohammed Farid Uddin Ahmed.
The NBR issued a statutory regulatory order (SRO) in 1993 relating to issuance of UD to felicitate the country's largest export earning sector.
BGMEA head office in Dhaka and regional office in Chittagong usually issue the UD against the export of garment.
Shahidul Hoque Mukul, BGMEA director, said: "I think it is done in connivance with the relevant officials," he added.
One general manager of a garment factory located at Kuril in the city said the garment manufacturers also take advantage of wastages at production level and other loopholes.
At least the government allows 3.0 per cent wastage of imported fabrics at production level, he said.
"It is a technical matter. Suppose 100 metres of cloths are needed for producing garments for a particular order, but the factory owners obtain UD for import of 150 metres," he added.
Chairman of the UD section of the BGMEA Mahmudur Rahman Tapash told the FE that they had identified some garment manufacturers who had been allegedly involved in such malpractices for long.
There is a list of 300-400 factories, which are suspected to have been involved in such practices, the UD chairman said.
"We take time in issuing UD to those particular factories," Tapash added.
While visiting the UD section of the BGMEA in Dhaka, it is found that rush of files seeking UD by different garment factories and its chairman is randomly signing files without verifying the files.
But, one official at the UD section told the FE that a factory that wanted UD for import of more than 100,000 metres of cloths was normally sent to correspondent banks for verification.
On an average, 1600 out of around 4000 garment factories take regular UD from the BGMEA offices.
Tapash said the malpractice was rampant a decade ago. "It has now been reduced considerably," he said.
He pointed out that the rampant practices of such channeling of imported cloths have been reduced mainly due to the setting up of popular brands of textiles like Denim. Besides, surveillance at the border with India has discouraged smuggling of woven cloths imported under bond facility, BGMEA sources claimed.
Tapash, who is also the owner of New Wave Style limited and New Wave Apparel Limited told the FE that a section of local musclemen also take regular tolls from the garment owners that are involved in such marketing of woven cloth in the local markets.
BGMEA leaders said export-oriented textiles mills are also supplying cloths to the local markets.
But 100 per cent export oriented textile mills are allowed to sell 20 per cent of their produce in the local market, NBR officials said.
There are export-oriented 35 large textiles mills across the country with a production capacity of 580 million metres a year. These mills, which include Sotorupa, Asian and Hamim, produce quality woven fabrics, BTMA sources said.
The government allows 100 per cent export oriented textile mills to supply 20 per cent of their produce to the local markets.
But the BTMA sources claim that these mills rarely operate to their full capacity.
According to Bangladesh Bank guideline prepared in 1996, there some 65 leading import items in its lists of categories. Fabric import is not included in the list following its insignificant import, BB sources said.
Admitting presence of huge fabrics imported under bond facility, Bond Commissioner Hossain Ahmed said his office is mainly responsible for conducting audit on import and export of garments under bonded facilities.
He also said it is quite difficult to quantify the size of the fabrics, brought under the bond facility, in local market.
Bond commissioner said his office cannot inspect as well due to lack of manpower.
Currently, there are 80 inspectors and most of them are aged. There is a requirement for at least 120 inspectors.
"We lack efficient manpower. There has not been any fresh recruitment since early 1980s. Some employees from different government organisations have been absorbed," the bond commissioner added.
NBR member (customs) Rashidul Hasan told the FE there are allegations about abuse of bond facilities, but it requires policy guidelines for checking the malpractice.
He said the government has made it a mandatory to put 'not for sale' mark on the bags of imported plastic raw materials to reduce the gross abuse of bond facility.
The DG of customs intelligence said conducting raids at markets like Ramna and Islampur is risky and in many cases are not possible mainly due to lack of logistics supports.
"The might be a law and order situation during such raid. Besides, I have shortage of manpower to conduct raid. I need RAB and police to make a massive raid in different markets in the city," she added.
Bangladesh Textiles Mills Association (BTMA) opines that uneven competition is being created due to such marketing of the fabrics in the local markets.
MA Salam, first vice president of the BGMEA, told the FE that they did not issue UD if they found such malpractices by the manufacturers.
Economist Abu Ahmed told the FE that abusing of bonded facilities would create an uneven competition in the country.
"I think the government should take stern measures to check the unhealthy practices by the garment manufacturers," he added.
The government is being deprived of a large amount of revenue every year as fabrics imported duty-free by export-oriented garment companies find their way into the local market, according to customs intelligence sources.
Such fabrics worth around Tk 2.0 billion is found at different markets mainly in Dhaka and Chittagong, the sources added.
The sources claimed that the annual cost of such fabrics imported under "general bond facility" or back-to-back LC (letter of credit) might be nearly Tk 2.5 billion a year.
The government could earn nearly Tk 1.0 billion annually on account duty if those fabrics were brought in under commercial imports, national board of revenue (NBR) officials said.
NBR sources told the FE that only a small volume of cloth was commercially imported. The country's leading tailoring houses usually import it for their own purposes, they said.
They said there are 78 per cent duty and other tariffs imposed on commercial import of fabrics.
The NBR sources named Choinika, Gazi Tailors and Ferdous import fabrics commercially for their own show rooms.
When asked, leading cloth merchants expressed their inability to show relevant import documents.
However, the Bangladesh Bank statistics show that there was no commercial import of fabrics in fiscal 2006-07.
It shows that the country's apparel sector imported a total of US$ 2537.38 million worth of fabrics in 2006-07 under back-to- back LCs and other means.
Of them, fabrics worth $ 1864 million arrived through LCs and oven cloth worth $ 57.01 arrived through other means for garment factories.
It is found that leading fashion houses, including prominent tailors, have been using the fabrics imported under special arrangement for re-export after value addition.
One official at Ramna's Aziz Tailors said a section of unscrupulous garment factories sell fabrics to the wholesalers at Islampur. "We buy the fabrics from them," he said.
When asked director general (DG) of the Department of Customs Intelligence Jahanara Siddiqui told the FE recently that her office was well aware of the sources of woven cloths in the local markets.
"If you visit the country's different entry points, you will find the commercial import very insignificant. So, how such a large quantity of bonded cloths is available in the local markets?" she asked.
She believes local markets have such cloths worth more than Tk 2.0 billion.
Sources at different entry points like Chittagong, Benapole, Dhaka Inland container Terminal and Dhaka Airport stated that the commercial import of cloths was small in the country.
Chittagong Custom House Commissioner Farid Uddin Ahmed told the FE that he did not see commercial import of fabrics through Chittagong port.
"I don't know about the other entry points. It might be one or two consignments a year," he added.
The Chittagong entry point is believed to be the largest entry point for imported cloths.
Bangladesh Garment Manufacturers and Exporters Association (BGMEA) leaders said some officials of relevant government department, in league with a section of unscrupulous apparel businessmen, are responsible for flooding of the local market with the fabrics brought under back-to-back LCs.
On the other hand, customs officials said, the garment businessmen are taking advantage of Utilisation Declaration (UD) issued by the BGMEA on imports of required fabrics for the export-oriented garment factories.
"We don't check or make any query while we get UD issued by the BGMEA on such imports. The BGMEA officials are authorised to issue UD against export of garment", said Mohammed Farid Uddin Ahmed.
The NBR issued a statutory regulatory order (SRO) in 1993 relating to issuance of UD to felicitate the country's largest export earning sector.
BGMEA head office in Dhaka and regional office in Chittagong usually issue the UD against the export of garment.
Shahidul Hoque Mukul, BGMEA director, said: "I think it is done in connivance with the relevant officials," he added.
One general manager of a garment factory located at Kuril in the city said the garment manufacturers also take advantage of wastages at production level and other loopholes.
At least the government allows 3.0 per cent wastage of imported fabrics at production level, he said.
"It is a technical matter. Suppose 100 metres of cloths are needed for producing garments for a particular order, but the factory owners obtain UD for import of 150 metres," he added.
Chairman of the UD section of the BGMEA Mahmudur Rahman Tapash told the FE that they had identified some garment manufacturers who had been allegedly involved in such malpractices for long.
There is a list of 300-400 factories, which are suspected to have been involved in such practices, the UD chairman said.
"We take time in issuing UD to those particular factories," Tapash added.
While visiting the UD section of the BGMEA in Dhaka, it is found that rush of files seeking UD by different garment factories and its chairman is randomly signing files without verifying the files.
But, one official at the UD section told the FE that a factory that wanted UD for import of more than 100,000 metres of cloths was normally sent to correspondent banks for verification.
On an average, 1600 out of around 4000 garment factories take regular UD from the BGMEA offices.
Tapash said the malpractice was rampant a decade ago. "It has now been reduced considerably," he said.
He pointed out that the rampant practices of such channeling of imported cloths have been reduced mainly due to the setting up of popular brands of textiles like Denim. Besides, surveillance at the border with India has discouraged smuggling of woven cloths imported under bond facility, BGMEA sources claimed.
Tapash, who is also the owner of New Wave Style limited and New Wave Apparel Limited told the FE that a section of local musclemen also take regular tolls from the garment owners that are involved in such marketing of woven cloth in the local markets.
BGMEA leaders said export-oriented textiles mills are also supplying cloths to the local markets.
But 100 per cent export oriented textile mills are allowed to sell 20 per cent of their produce in the local market, NBR officials said.
There are export-oriented 35 large textiles mills across the country with a production capacity of 580 million metres a year. These mills, which include Sotorupa, Asian and Hamim, produce quality woven fabrics, BTMA sources said.
The government allows 100 per cent export oriented textile mills to supply 20 per cent of their produce to the local markets.
But the BTMA sources claim that these mills rarely operate to their full capacity.
According to Bangladesh Bank guideline prepared in 1996, there some 65 leading import items in its lists of categories. Fabric import is not included in the list following its insignificant import, BB sources said.
Admitting presence of huge fabrics imported under bond facility, Bond Commissioner Hossain Ahmed said his office is mainly responsible for conducting audit on import and export of garments under bonded facilities.
He also said it is quite difficult to quantify the size of the fabrics, brought under the bond facility, in local market.
Bond commissioner said his office cannot inspect as well due to lack of manpower.
Currently, there are 80 inspectors and most of them are aged. There is a requirement for at least 120 inspectors.
"We lack efficient manpower. There has not been any fresh recruitment since early 1980s. Some employees from different government organisations have been absorbed," the bond commissioner added.
NBR member (customs) Rashidul Hasan told the FE there are allegations about abuse of bond facilities, but it requires policy guidelines for checking the malpractice.
He said the government has made it a mandatory to put 'not for sale' mark on the bags of imported plastic raw materials to reduce the gross abuse of bond facility.
The DG of customs intelligence said conducting raids at markets like Ramna and Islampur is risky and in many cases are not possible mainly due to lack of logistics supports.
"The might be a law and order situation during such raid. Besides, I have shortage of manpower to conduct raid. I need RAB and police to make a massive raid in different markets in the city," she added.
Bangladesh Textiles Mills Association (BTMA) opines that uneven competition is being created due to such marketing of the fabrics in the local markets.
MA Salam, first vice president of the BGMEA, told the FE that they did not issue UD if they found such malpractices by the manufacturers.
Economist Abu Ahmed told the FE that abusing of bonded facilities would create an uneven competition in the country.
"I think the government should take stern measures to check the unhealthy practices by the garment manufacturers," he added.