Fresh VAT burden on weavers

Thirty years ago, Nilkamal Basak began weaving the much-coveted Tangail sari to take his family profession forward.

He didn't have to pay VAT until the revenue officials last year asked him and his colleagues in Pathrail, Tangail to pay a fixed amount as package VAT against sales of saris.

The weavers paid it to avoid any unnecessary hassle.

However, they are now confronting a new reality. A flat 15 percent VAT is going to be slapped on their products once the VAT and Supplementary Duty Act, 2012 comes into effect from July 1.

This is not the end.

Local fashion boutiques, the main promoters and sellers of handloom clothes, are also going to be under the purview of 15 percent VAT from the beginning of next month, up from 4 percent.

For Nilkamal, this is not good news at a time when the weavers are under pressure from falling demand for sari and influx of Indian saris through legal and illegal channels. The demand for saris is on the wane as more women prefer to wear salwar-kameez.

“Prices of saris will rise if 15 percent VAT is slapped on weavers. This would only compound our misery,” said Nilkamal over phone.

Also, other handloom fabrics such as lungi and napkin known as gamchha are likely to get pricier due to the introduction of the new VAT system.

The 49-year-old weaver said many handlooms became inoperative over the recent years due to falling demand for handmade saris which faced stiff competition from machine-made cheap clothes.

He feared the government's latest decision would force many more weavers to quit their profession.

“Why will people buy our saris at higher prices when better finished clothes are available at cheap rates? Where will the century-old handloom sector head for?” he questioned.

FASHION HOUSES TO BE HIT

Weaver Alimuzzaman Ripon of Narayanganj and operators of some local fashion houses are worried that imposition of 15 percent VAT will increase prices of locally weaved clothes and reduce the sale.

However, the National Board of Revenue (NBR) claims that prices will not go up as businesses involved in the supply chain will get input tax credit which is difficult to get under the existing VAT Act, 1991.

To claim the rebate, weavers and firms will have to obtain a Business Identification Number (BIN) online, keep records of their purchases and file returns with the NBR regularly, said revenue officials.

Traders, however, said getting the tax rebate would be tough for small and medium businesses and marginal producers like weavers who work in an informal manner in the rural and suburban areas of some districts, including Tangail, Sirajganj and Narsingdi.

Nilkamal said it would be difficult for most of the little educated weavers in his locality to maintain records and accounts properly to claim the rebate. He feared this might cause harassment to weavers and create panic.

He said weavers usually buy yarn from small sellers who don't have VAT registration. So they will not get VAT invoices.

“I don't understand rebate. I'm a weaver and it is my hereditary profession. I know about yarn and colour. Governments in other countries patronise and nurture traditional products. But here we see attempts being made to destroy those,” said an emotional Nilkamal.

Weavers said their fabrics and clothes would face an increased competition from imported clothes as importers would get a rebate for having a VAT registration.

Azharul Hoque Azad, president of Fashion Entrepreneurs Association of Bangladesh, said imposition of 15 percent VAT would fuel prices of locally weaved clothes and affect the sector that grew over the last two decades.

The sector grew due to opening of many new local fashion houses and demands from a section of middle income families.

Azharul, also the owner of fashion outlet Sadakalo, said most of the suppliers of local fashion houses are weavers who don't have VAT registration and usually don't keep records.

“So, we won't be able to claim rebates. Ultimately, the burden of the additional VAT will fall on the buyers. Customers will lose interest in buying local clothes.”

Alimuzzman Ripon, owner of 60 power looms and 40 handlooms, said many weavers would be in trouble if the demand for handloom products plummets.

He said weavers don't have work throughout the year.

Raghunath Basak, a weaver and wholesaler of sari and other fabrics in Tangail, said a section of customers will pick Indian clothes as the local products would get costlier due to imposition of 15 percent VAT.

“This will further affect the local handloom sector. Weavers are already facing a tough competition from traders of Indian saris and fabrics,” he told The Daily Star.

He said weavers and people in the value chain of locally made clothes would be benefited if the prices remain low and competitive.

Soumik Das of Rang Bangladesh said the government should focus on widening the VAT net instead of imposing a flat 15 percent across the board simultaneously.

Ashraful Alam, chief operating officer of the country's largest fashion house Aarong, said there might be some impact on the prices of retail branded garments with the imposition of 15 percent VAT.

He said his company was working to evaluate the probable price impact.

Talking to this correspondent on condition of anonymity, two NBR officials said any rise in prices of handloom products would affect weavers unless they get rebates. 

Azharul urged the government to keep handloom products out of the purview of 15 percent VAT to help the tradition continue.

He said the government exempted 1,043 items from VAT. “It will not be a big loss for the state if handloom products are kept VAT free.”