Keeping an eye on RMG
THE garment sector now needs serious attention for the sake of the workers and the owners or the situation is bound to deteriorate, causing permanent damage to the industry and the country as well. It seems like everyone -- the government, BGMEA and BKMEA -- is being very casual. Vat on rent paid, taxes, wages are all being imposed/increased together. Will the companies be able to pay them, or go bust?
The following points must be taken care of as top priority for this sector:
2nd Stimulus Package
The package was declared after assessing the eligibility of those who suffered during the worldwide economic recession. The benefit was supposed to be paid immediately, but is still unpaid. More than seven months have passed since the press release was issued, and over three weeks have gone since the F.E Circular number 12, addressed to all authorised dealers of foreign exchange, was issued.
The authorised dealers -- commercial banks -- said that they were unable to make payments to the garment exporters because of some complications in the circular. How long should it take to eliminate the complications? I should say, not over a day, if representatives from commercial banks, Bangladesh Bank, BGMEA and BKMEA sit together for few hours. This should happen immediately.
Joint venture/foreign investment outside EPZ
Bangladesh now produces garment of all three grades -- low, medium and high. All technologies required in this industry are very much known to us. The industry is suffering from shortage of workers, which is the reason why workers demand pay hikes before the end of the legitimate period of 5 years.
Why then should foreign investment be allowed in this sector? I do not see any reason. The sector, therefore, should go back in the restricted list immediately. No further investment should be allowed in this sector except for BMRE of the existing units as long as the workers supply situation does not normalise.
Deduction of tax at source
It has been for quite a few years that the companies under this sector have been paying tax by way of deduction at source @ 0.25%. The government, in the current budget, has proposed to raise it to 1% -- which is a 400% increase! This is self-contradicting, taking into consideration the declaration of stimulus to the small and medium-sized factories under this sector. How can the government justify it?
The prime minister, in her speech on the budget, proposed to reduce it to 0.50%. I do not think there is any scope at the moment to accept any increase. The government should review its stance on this issue and keep it as it was, which will be easy for everybody, and even companies making losses can pay the taxes. If, at all any increase is planned, we should opt for making payment of tax against assessment.
VAT @ 15% on rent
15% VAT payable on rent paid by RMG units is not logical since the export oriented industries have got the right to claim draw back. It should be withdrawn.
This is the most crucial issue, over which over 200 factories have been vandalised by workers instigated by so-called leaders. The last two scales for garment workers were given on November 19, 2006 and January 12, 1994. The scale is supposed to be reviewed every 5 years. I do not know why it was not reviewed within this long period.
The workers' agitation started in the middle of 2006 when a lot of factories were vandalised, resulting in huge losses of the owners. The new scale, however, was given in November 2006 and was effective from January 2007. On the basis of this date the next scale should come in to effect on January 01, 2012. But violent agitation has started again, in three and half years.
The responsibility lies with the owners who made imprudent expansions, leading to shortage of workers and providing a platform for the vested quarters to bring the workers out to the street. Even though no new scale was given in 13 years, the agitation started only at the end of the 13th year because there was no shortage of workers -- instead there were more workers than required.
Agitation for higher wages started when owners started making unusually big factories in Ashulia and Savar in 2006. However, at one stage, the issue was resolved by way of giving a new scale for the workers. We, the owners, did not learn any lesson and kept on making expansions. As a result, the workers started agitation for higher wages just before the end of three and a half years though the new scale in normal course should come after 5 years.
Since the shortage of workers aggravated the situation further, the workers are asking for a much bigger increase. If the expansion continues, the wages will reach such a point that we will no longer be competitive and will start losing our share in the market. We should not forget that the productivity of workers is the lowest in our country.
All the relevant parties realise that the wages should be increased by way of giving new scale. Though only the minimum wage is talked about, it should be a scale given for all grades. Since the increase should be given effect from January 2012, as per rule, I feel that it should be implemented in 3 phases, the last being in January 2012, the 2nd in July 2011 and the first in August 2010.
This will help the owners to negotiate with the buyers for increase of manufacturing charges because the factories usually remain booked for about 6 months. If the whole increase is given in one go, factories will not be able to pay it because the orders for the next 6 months had taken into account the wages that are prevailing now. Further expansion should be stopped through making laws. Presently, about 15% of the sewing machines remain idle for shortage of workers, and there are more idle machines in closed/sick factories.
I hope that the government will not put too big a load on RMG owners, but the issue of increase of wages is unavoidable. The government should not burden the factories with any other levies at the moment. Thus, (i) tax payable should not be increased, (ii) vat on rent paid should not be applied, (iii) the increase of wages should be effected in 3 phases at a span of 3/6 months, and (iv) further expansions by local entrepreneurs or foreign investors should be stopped with immediate effect.