Readymade garment exporters are set to receive a huge tax benefit just before the national elections as the government has decided to reduce the rate of source tax on export earnings further by 58 per cent. Finance Minister Abul Maal Abdul Muhith has already conveyed his consent to National Board of Revenue to reduce the source tax to 0.25 per cent from current 0.60 per cent. Earlier, in September, the government slashed the tax rate for RMG exporters to 0.60 per cent for the current fiscal year, following pressure from exporters, reducing from 1 per cent reinstated in the budget. Finance Ministry officials said that Muhith gave his consent to a summary placed by NBR on a demand of apparel exporters to either waive the income tax at source on export earnings or lower it to 0.25 per cent.

They said that NBR would complete the procedures, including taking vetting from Law Ministry, to issue the statutory regulatory order reducing the rate to 0.25 per cent. As per Income Tax Ordinance-1984, exporters are supposed to pay 1 per cent tax at source on their export income. According to an NBR estimate, previous reduction in source tax may reduce its earnings from the sector by Tk 1,600 cr in the year. Now NBR will incur another Tk 1,400 cr for the fresh tax cut. Apparel sector had enjoyed 0.25 per cent source tax on export for the last time in 2005 and then NBR gradually increased the rate to 0.70 per cent in FY 2018. Immediate after the government offered the benefit in September, Bangladesh Garment Manufacturers and Exporters Association and Bangladesh Knitwear Manufacturers and Exporters Association again demanded to cut the source tax further. BGMEA in a letter to NBR made the demand as part of incentive package to implement the new minimum wage for garment workers and to keep the sector ‘competitive’ in global market.

The new wages which raised the minimum wage of RMG workers to Tk 8,000 from previous Tk 5,300 will take effect this month. Officials of NBR said that they were, in general, not in favour of a general tax exemption considering the impact on tax collection. But in most cases, they reduce the tax in line with the government’s instruction, they said. They said that NBR had already received the decision from Finance Ministry. A summary and the draft of the SRO will be sent to Law Ministry for vetting, they said, adding that they would issue the SRO after getting nod of law ministry. The benefit will be effective from July 1, 2018 with retrospective effect. Exporters will be able to adjust the previously paid tax at higher rate.