Motorcycle makers have urged the government to continue exempting VAT on sales of locally-made parts until 2027 to keep prices low as the purchasing power of people has seen a sharp fall due to Covid-19 pandemic.
The exemption provided by the Motorcycle Industry Development Policy 2018 is set to expire in the outgoing fiscal year. At least 30 per cent of the components used in building motorcycles are manufactured locally.
"In the proposed budget for fiscal 2020-21 the government did not incorporate the VAT exemption," said Hafizur Rahman Khan, president of the Bangladesh Motorcycle Manufacturers and Exporters Association and chairman of Runner Group.
"If the government does not provide the exemption of VAT, the rapidly growing motorcycle industry will not be able to survive as the industry has been severely affected due to the pandemic of Covid-19," he said.
"I on behalf of the association wrote a letter to Bangladesh Trade and Tariff Commission to protect our local industry," Khan said in a statement.
Local motorcycle manufacturers have been able to bring prices down and have even started exporting to international markets, said the association.
Without the VAT exemption, they will not be able to survive in the domestic market competing with imported motorcycles, it said.
The 2018 policy was formulated by the government to attract foreign investment in this sector.
The aim was to increase the sector's contribution to the gross domestic product from the present 0.5 per cent to 2.5 per cent by 2027 and expand the industry's capacity, now dominated by the assembling of imported components.
The government set a target to enable the local manufacturers to produce around 5 lakh motorcycles annually by 2021 and 10 lakh by 2027.
Apart from that, the policy also set a target to increase the employment opportunity provided by the sector to 15 lakh from existing 5 lakh.
This light engineering sector with its supply of original spare parts is a very important enabler for the local motorcycle industry, said Khan.
Once the policy was formulated, Honda, Bajaj, Yamaha, Hero and TVS started manufacturing motorcycles in Bangladesh, bringing together foreign and local investors.
Local manufacturers like Runner, New Grameen and Roadmaster are also trying to improve their technology and going for exports to Nepal, Bhutan and other countries.
According to Khan, investment in the sector currently stands at around Tk 8,000 crore.
The policy support from the government helped to significantly cut back import of motorcycle components, saving foreign currency and enriching domestic reserves, he said.
But the industry is under the threat of economic activities being almost paralysed due to the pandemic of Covid-19.
It faced revenue losses of some Tk 1,200 crore due to the prolonged shutdowns, leading to uncertainties, including apprehensions and panic among employees over losing their jobs, said the association.
Against this backdrop, the industry needs policy support from the government to protect itself alongside foreign investment, it said.