Home appliance assemblers turning into manufacturers
The value-added tax exemption for producing air conditioners, refrigerators and freezers locally has created interest among home appliance manufacturers in Bangladesh as firms are increasingly setting up full-fledged facilities, cutting their reliance on assembling.
For the last decade, the National Board of Revenue has been encouraging the manufacturing of the major home appliances by withdrawing the indirect tax on raw materials import and production.
Initially, only a few came forward to avail themselves of the benefit.
The revenue authority began to register increased applications from local electronics sellers in 2017 as they look to stay competitive since a 15 per cent VAT waiver provides a considerable advantage in terms of pricing.
Now 10 local companies are making refrigerators, freezers and ACs.
Officials said companies that availed the VAT benefit have to invest a lot to fulfil 30 per cent value addition criteria.
"The home appliance manufacturing capacity has increased. This is particularly apparent in the case of refrigerators and freezers," said Md Masud Sadiq, a member of the VAT policy of the NBR.
He said the government wanted to encourage businesses to promote locally made products, create jobs and enable people to buy electronic appliances at a lower price by extending tax and VAT benefits.
"The VAT exemption has encouraged firms to consider making goods in Bangladesh."
The benefits offered such sectors will expand the capabilities of the investors, and the government expects them to invest in other areas as well, said Sadiq.
Once fully import-dependent, local manufacturers and assemblers now meet nearly 80 per cent of the annual demand for refrigerators of 25 lakh units. The rest is met through imports from global companies.
The NBR provides VAT and supplementary duty waivers on the imports of raw materials. Industry stakeholders say many components and parts, such as bodies and foams are made locally.
In the case of ACs, local manufacturers and assemblers cater to almost 70 per cent of the domestic demand, which had been growing until the coronavirus outbreak in the country in March last year.
A decade ago, local manufacturers and assemblers met as much as 15 per cent of the demand.
Manufacturers say the price of AC has gone down by up to 45 per cent compared to the imported ones on the back of the growing local manufacturing.
The earlier benefit expired in June. The government has extended the exemption for the foreign and local procurement of raw materials for compressors and ACs to June 30, 2024.
The exemption facility for the import and local purchase of raw materials for compressors, refrigerators and freezers has been extended to June 30 next year.
In addition, the NBR spared manufacturers from paying VAT on the production of washing machines, microwave ovens and electric ovens until June 2023. The concession has also been made available on sourcing raw materials from both local and foreign markets.
"This policy support will help manufacturers strengthen the capacity and will benefit the consumers ultimately," said Tanvir Rahman, chief executive officer of Walton Air Conditioner.
"As consumers pay the VAT, the impact of the exemption will benefit them directly in terms of prices."
The price of ACs has become more reasonable thanks to the local production, he said.
According to NBR officials, companies such as Walton Hi-Tech, RFL, Fair Electronics, Unitech BD Ltd, Elite Hitech, Rancon Motors, Minister Hitech Park, Jamuna Electronics, Trade International Industries Ltd, and Butterfly Marketing Ltd have received the VAT-exemption.
Walton and Elite Hitech have completed the construction of the AC manufacturing facility, officials of the companies said. Walton can manufacture 300,000 units of air-conditioners per year.
"Except for compressors, all major parts and components are manufactured at the Walton factory," Rahman said.
He said more companies would be keen on local production, and consumers would access good quality products at reasonable prices.
Noor Alam, deputy managing director of Elite Hitech Industries, said the extension of the VAT exemption for AC manufacturing would play a key role in developing the local industry and attract long-term investment in technology and product research and development.