Hike in source tax a fresh blow

The one percent source tax on apparel exports will have a negative impact on the sector as the shipment of apparel items has been facing the challenges of a volatile global economy.

The government is collecting 0.70 percent source tax from the garment sector at present. The new budget has proposed to raise it to 1 percent.

At the current rate, $196.14 million was collected, while the country exported apparels worth $28.02 billion last fiscal year. If the government imposes 1 percent source tax, the revenue income would stand at $280 million.

“We had not expected the government to propose a continuation of the source tax. We had been demanding its withdrawal for at least next two years since we are going through a tough time,” said Siddiqur Rahman, president of Bangladesh Garment Manufacturers and Exporters Association.

Although the finance minister proposed cuts to corporate tax for the apparel sector to 15 percent from 20 percent at present, it was not enough to satisfy the garment makers.

Rahman said the government should withdraw the source tax for at least two years, reduce the corporate tax to 10 percent and give 5 percent cash incentives on export receipts.

 “The next two years are crucial for us. We need policy support to maintain even moderate growth,” he said.

The BGMEA chief said earnings from garment shipments grew only 2.21 percent in the first 10 months of 2016-17 -- way below the sector's average of 13 percent in the past one decade.

The garments export receipts during the period were 6.06 percent lower than the ten-month target of $24.62 billion. Woven garment exports fell 0.14 percent to $11.89 billion and the export of knitwear items increased only by 4.81 percent to $11.26 billion, according to the Export Promotion Bureau.

Apparel exporters said a silent recession is going on in their main export destinations in Europe, brought about by general elections in four major economies in 2017.

France and the Netherlands have already held their elections. The UK is heading to the polls on June 8 and Germany on September 24.

In July-April, garment shipments to Bangladesh's single largest export destination, the US, declined 6.8 percent and the third largest export destination, the UK, 5.91 percent.

Besides, subdued demand for clothing items can be seen among consumers in the Western world in recent times, said apparel exporters.

For instance, in 2015, consumption of apparel items declined 7.9 percent worldwide as consumers shifted their focus to electronic gadgets.

In 2015-16, the contribution of exports to GDP was 15.50 percent, down from 16.04 percent in 2014-15, according to the Bangladesh Bureau of Statistics.