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Government wants to raise apparel export tax 5-fold in budget (Bangladesh)

The government has planned to impose higher tax on export of apparel items for collecting more revenue from the sector, officials of the finance ministry said.

They said that tax at source on export of RMG products might be increased to 1.5 per cent, five times higher, from the existing 0.30 per cent in the upcoming national budget for the fiscal year 2015-16.

Tax at source at 0.30 per cent is set to expire next month as the government lowered the tax rate in April 2014 for 14 months from the 0.80 per cent.

The government may incur an estimated loss of around Tk 2,000 crore in the period because of reduction of tax at source on export for the sector, according to the estimate of the revenue board.

Special tax rate calculation facility which was scraped in last fiscal year for showing increased income from export earnings by the apparel exporters may also not be reinstated, they said.

RMG item exporters could show several times income from export earnings than actual ones taking the advantage of the special tax calculation facility under which, from 2005 to June, 2014, taxmen calculated tax at an estimated 10 per cent at the annual tax assessment though exporters paid tax at the rate of 0.80 per cent.

Now, the tax will be calculated at the regular 35 per cent as the revenue board in last fiscal year scrapped the facility.

Officials said that the National Board of Revenue had already finalised budget proposals including such measures for the sector in line with the instructions of the government high-ups.

Top executives of the government think that the apparel exporters now should pay tax at higher rate after enjoying huge tax benefits over the last few decades, they said.

RMG exporters enjoy various fiscal incentives that include payment of income tax at reduced rate, cash incentives at 0.25 per cent on freight on board value of export items, duty-free import of raw materials, duty drawback facility and full waiver on utility bills.

RMG exporting companies need not pay any other tax on their export earnings, except tax at source paid on export proceeds, as it is considered as final settlement though other sectors have to pay income tax at regular rate of 35 per cent for companies.

At the pre-budget discussion with the revenue board in April, Bangladesh Garment Manufacturers and Exporters Association and Bangladesh Knitwear Manufacturers and Exporters Association, however, demanded for continuation of the special tax rate calculation facility and 0.30 per cent export tax for next five years.

But the government decided to realise more tax from the sector as the sector has become more resilient and profitable sector, an official of the revenue board said.

A large amount of revenue will come as tax at source on export receipts if the rate is increased, he said.

Officials said that the NBR primarily made a proposal to increase the tax to 0.80 per cent to one per cent but the government high-ups instructed to set the rate at 1.5 per cent.