Duty cuts likely for SME raw materials

The government is likely to facilitate small and medium enterprises (SMEs) with substantial duty cuts on the import of basic raw materials and a flat VAT rate of 3 percent in the next budget.
The government is expected to cut import duties on base metals, the main raw material for light engineering, to the lowest possible level, an official of the National Board of Revenue said, seeking anonymity. The current rate is 7 percent.
The SME sector is likely to get nearly 75 percent of the total industrial development budget, said an official of the industries ministry.
A block allocation is also expected to develop infrastructure and build capacity of the sector, he said.
Industry insiders said the SMEs did not receive any budgetary allocation so far.
The SME sector plays an important role in exports and employment generation, as 98 percent enterprises fall in this category.
Qazi Kholiquzzaman Ahmad, an economist, stressed the need to implement policies taken in the previous years.
"Identifying SME as a thrust sector is not good enough anymore, as it was identified as a thrust sector in the first five-year planning in 1955," he said. "After so many years, we are yet to boost the sector as a driver of the economy."
Meanwhile, the government is trying to boost the sector to alleviate poverty and generate employment.
As part of this move, the government considers reducing duties on raw material imports by SMEs and fixing a 3 percent tariff slab, said an official.
The recent move to hand over the Tk 210 crore ADB grant that the government received in 2004 to the SME Foundation is expected to solve the fund crisis, he said.
Under this programme, banks and non-bank financial institutions will get funds at 3-4 percent from the foundation, while entrepreneurs are entitled to loans at 8-9 percent.
The present lending rate of 13-16 percent is considered an impediment to the growth of the sector.
The government also considers increasing duties on the import of finished products that are being produced locally.
The government will enhance monitoring over implementation of the decisions taken last year. It was decided last year that the small to medium manufacturing units would get a complete VAT exemption on utilities, including electricity and phone, and insurance services. These units enjoy 80 percent exemption of VAT on those services.
Also, the government's move to form a uniform definition for SME will help reduce confusion over the threshold for capital machinery and turnover, said the official.
A three-member committee was formed in May to redefine the scope for the sector and establish clusters for industries.
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