Tax hikes to raise production costs by Tk 12,000 a tonne: steel makers

Steel manufacturers today urged the government to withdraw proposed hikes in value-added tax (VAT) and duties in the national budget for 2026-27, warning that the measures could increase costs by up to Tk 12,000 per tonne as most mills operate below half their capacity.

At a press conference at the National Press Club, Bangladesh Steel Manufacturers Association (BSMA) President Mohammed Jahangir Alam said the industry was already struggling with rising electricity tariffs, port charges, river dues, transportation expenses, and other operating costs.

The recent hike in electricity prices alone has increased production costs by Tk 1,800-2,000 per tonne, while higher logistics and operational expenses have added another Tk 3,000-3,500 per tonne, he said.

The proposed budget measures—including higher VAT at the sales stage, increased VAT on locally sourced scrap, and additional duties on ferro-alloys, refractory materials, and spare parts—would add a further Tk 2,000-2,500 per tonne to production costs.

"As a result, direct production costs could increase by Tk 5,000-6,000 per tonne," Alam said.

Weak demand has compounded the pressure on manufacturers. According to the BSMA, most steel mills are operating at less than 50 percent of their installed capacity, pushing up overhead, financing, and other fixed costs.

This has created an additional indirect cost burden of Tk 5,000-6,000 per tonne, bringing the combined impact of higher taxes and underutilised capacity to Tk 11,000-12,000 per tonne.

Bangladesh's annual steel demand stands at around 5 million tonnes, while the industry's installed production capacity exceeds 10 million tonnes, leaving many producers with significant idle capacity, Alam said.

He welcomed several business-friendly provisions in the proposed budget, including the repeal of certain minimum tax provisions, lower advance tax requirements for appeals and references, a reduction in withholding tax on interest payments for foreign loans from 20 percent to 10 percent, and a cut in tax deducted at source on electricity bills.

However, he said those benefits would be outweighed by the proposed increases in taxes and duties on steel-related inputs.

The BSMA president argued that increasing industrial output and accelerating the implementation of public infrastructure projects would be a more effective way to boost government revenue than imposing additional taxes on industries facing subdued demand.

He said faster execution of roads, bridges, flyovers, railways, ports, airports, economic zones, housing projects, and power plants would stimulate steel consumption and help manufacturers utilise more of their installed capacity.

BSMA Secretary General Sumon Chowdhury said industries need policy support to expand production and create jobs.

"If factories operate at only 50 percent capacity, government revenue will not increase," he said, adding that higher industrial output would generate more revenue even with a lower tax burden.

He also warned that weak industrial growth could limit employment opportunities for the growing number of graduates entering the job market each year.

The association urged the government to withdraw the proposed additional VAT, duties, and taxes on steel-related inputs; retain the existing VAT structure on local scrap and sales; restore the turnover tax rate to 0.6 percent from the proposed 1 percent; and speed up the implementation of development projects.