New tax breaks for exporters

It is interesting to note that the government, which had reduced tax-at-source for exporters to 0.60 percent (for all goods except jute) back in September, has now reduced it further to 0.25 percent as the new government is about to be sworn in. It is unclear as to why this further reduction has taken place in the span of four months. This new tax regime is to remain in force till the next budget which is due in June. When we take into consideration the fact that 83 percent of all exports from Bangladesh comes from ready-made garments (RMG), it is easy to deduce that the greatest beneficiaries of such a policy will be the RMG sector. The flipside to this arrangement, according to experts, is that government revenue collection will be adversely affected.

While we are being told that this new short-term policy will encourage more exports from the RMG sector, is there really any need to give greater benefit to an already mature sector? Indeed, the National Board of Revenue (NBR) already had a tax-friendly outlook towards exporters prior to this reduction and the tax rate was a very modest one percent. One could make the argument that if the industry cannot afford to pay a paltry one percent payment as tax on export, precisely how will then revenue coffers be filled? The NBR may face a tax revenue shortfall of Tk 400-500 crore due to this reduction in tax-at-source from RMG export, and we wonder what other sectors will have to bear the brunt of this revenue deficit.