B Mirror Desk : The government intends to eliminate the 15% reduced tax rate benefits for textile entrepreneurs in the forthcoming fiscal year, as part of a broader strategy to move away from tax exemptions, according to officials from the National Board of Revenue (NBR).
In the upcoming budget, the sector is anticipated to revert to the standard corporate tax rate of 27.5%. However, publicly traded companies will benefit from a slightly lower rate of 22.5%, as stated by the officials. Furthermore, a 2% advance income tax (AIT) may be levied on the importation of essential raw materials like cotton and synthetic fibers. Entrepreneurs express concern that the textile industry is already facing challenges due to ongoing gas and electricity shortages, and an increase in tax rates will only worsen their situation. Saleudh Zaman Khan, vice president of the Bangladesh Textile Mills Association (BTMA), remarked, ‘With the rise in costs over the past two years, profitability in the sector has significantly declined.
In this context, an increase in taxes will make it difficult for many businesses to survive.’ A senior NBR official involved in budget planning, who requested anonymity, informed TBS that the reduced tax rate benefit for the textile sector is set to expire on June 30 of this year, with no plans for extension, meaning companies in this sector will be required to pay the standard tax rate moving forward. He noted that this decision is part of the government’s initiative to phase out tax exemptions and enhance revenue collection. However, the current reduced tax rate for ready-made garment exporters, which is presently capped at 12%, may be extended for an additional two years, he added.
The official stated that these companies will continue to receive benefits under the sunset clause until 2028, leaving little room for the withdrawal of this support before that time. Saleudh Zaman mentioned that textile mills generate over $20 billion annually from both exports and the domestic market, with the local market contributing only about $1 billion. He pointed out that textile mills incur a 1% source tax on their annual turnover for yarn and fabric exports, while domestic sales are subject to a 4% source tax. Industry insiders report that many textile mills are either losing money or barely breaking even under the current circumstances. Even those that are profitable typically see an average profit margin of no more than 3%.
The BTMA vice president explained to TBS, ‘With a profit margin of 3% and a 1% source tax on turnover, our effective tax rate is 33%, despite the official rate being 15%.’ Saleudh Zaman added, ‘If an additional 2% AIT is imposed on cotton imports, and we can adjust the 1% source tax, our tax burden would still double, raising our effective tax rate to 66%.’ Dr. Syed Md Aminul Karim, a former NBR member, remarked to TBS, ‘For years, the government has permitted the textile and garment sectors to pay taxes at lower rates. However, it is now time to gradually transition them to standard tax rates. The government should implement a system where taxes are determined by a company’s actual profitability—no profit, no tax; higher profits, higher taxes.’ The BTMA reports that there are 1,854 textile mills affiliated with the association, of which 58 are publicly traded. Currently, around $22 billion has been invested in this industry.
