“…a good number of mills might turn into sick ones due to misuse of bonded warehouse facility as well as illegal import of yarn and fabrics through misdeclaration,” the BTMA letter reads.
Now, Customs wing of the revenue board on 30 June issued a statutory regulatory order amending the Bonded Warehouse Licensing Rules-2008, incorporating a number of conditions, including the minimum size, capital and lifespan of the factory that the applicant must fulfil for getting the licence.
Misuse of bond facility has become a serious threat to the local industries over the years, especially the readymade garment sector, more so as there appears to be no end to such malpractices despite the best of efforts of the Government agencies.
Almost on a regular basis, one comes across news of misuse of bond facility. In October 2019, the Customs Bond Commissionerate (CBC) in Dhaka seized over 100 tonnes of fabric over misuse of bond facility during a drive to three markets at Islampur in Dhaka.
The raw fabrics were imported from China, South Korea and India at zero duty facility to export after making garment items, as per CBC Dhaka, a team of which led by Deputy Commissioner Rajvee Ahmed reportedly conducted the drive and found the fabrics at three godowns of Md. Matin, Vice-Pof Islampur Babsayee Samity.
Assistant Commissioner Md. Al Amin, who participated in the drive, said that they conducted the drive on being tipped off and unearthed the fabrics imported under bond facility. “Owner of the godowns did not come after repeated calls and that is when we broke open the lock. Moreover, the people who were present during the drive failed to show any valid documents,” said Md. Al Amin, adding, “Those who imported the fabrics, action under customs act would be taken against them.”
Earlier, bond license of 232 firms were suspended for their involvement of irregularities. Then again in December 2019, a team of officials from the Customs Bond Commissionerate, Dhaka conducted a raid at Bismi Yarn Trading at Tanbazar in Narayanganj and seized a stock of yarn worth about Taka 1 crore.
The yarn imported under the bonded warehouse facility was reportedly sold in the open market.
The Deputy Commissioner of Customs Bond Commissionerate Dhaka, said, “Suprovo Knit Composite Factory, situated at Vadam area under Tongi upazila of Gazipur district, had imported the yarn under duty-free privileges and was supposed to make exportable readymade garments items. But the knit factory has sold the yarn to Bismi Yarn Trading, violating the bonded warehouse rules.”
Earlier in 2018, customs officials discovered abuse of duty-free facility under bonded-warehouse scheme after auditing the documents of some 136 import consignments belonging to one apparel exporter. The consignments of RMG fabric came through the Chittagong Custom House (CCH) in 2018.
According to the audit investigation by the customs officials, the Laylak Fashion Wear Limited, Ganakbari, Ashulia, Dhaka, reportedly imported the fabric against 136 chalans. The Customs Valuation and Internal Audit (CVIA) Commissionarate during physical verification found that the relevant garment company had sold the fabric imported duty-free to the local traders. On 1 November, 2018, an audit team conducted physical inspection in the factory and did not find any imported fabric on its premises.
Even the team did not reportedly find the fabrics imported just a week ago through the CCH. After the inspection, the company submitted documents in support of apparel exports, showing that they have used those duty-free raw materials for producing garments. The audit team also scrutinised the export documents and found a gross mismatch between information on the imported fabrics and the bill of entries. According to the initial audit report, the customs also detected information gap in relation to quantities of fabric and its prices. They also identified some anomalies in around 20 Proceed Realisation Certificates (PRCs) including remittances at lower rates.
In one instance, the factory said it had exported RMG to Japan but it received export proceeds from Peru. There was no explanation from the exporter as to why earning against export came from Peru. Also, the audit team found that buyers remitted no funds against some 27 export chalans (invoice) of the company.
The team said the Government has lost around Taka 500 million in duty and taxes due to the abuse of the bonded-warehouse facility by this particular RMG exporter.
According to the Customs Law-1969, exporters, who are entitled to enjoy bonded-warehouse facility for duty-free import of their raw materials, will have to use the products for exports only.
There are umpteen such cases of misuse of the bond facility, which along with importing yarn, fabric and other materials through misuse and misdeclaration of duty-free benefit had led the country’s textile millers to seek Prime Minister Sheikh Hasina’s intervention to stop such malpractices.
The Bangladesh Textile Mills Association (BTMA) in separate letters to the PM and the Textile and Jute Minister submitted a plea, in which the association requested the Textile Minister to issue a demi-official (DO) letter to the Finance Minister, so that the drives continue to stop the local market from being flooded with illegally imported textile materials under duty-free facility.
“…a good number of mills might turn into sick ones due to misuse of bonded warehouse facility as well as illegal import of yarn and fabrics through misdeclaration,” the letter read.
Citing the National Board of Revenue (NBR) data, the BTMA officials said Customs Bond Commissionerate conducted a total of 223 drives during January-October period this year, and seized 85 trucks and covered vans laden with fabrics and yarns brought by misusing bonded warehouse facility. In the period, the NBR identified Taka 2.56 billion revenue dodging by misusing bond facility, and also cancelled a total of 326 bond licences, they added.
It may be mentioned here that such rampant misuse of the bond facility – whether it is fabrics or import of capital machinery – has led the National Board of Revenue to tighten the conditions of issuing bonded warehouse licence to prevent misuse of duty-free import facility under bond licence.
The new conditions will also prevent small and fake companies from getting the licence for import of raw materials duty-free, said NBR officials. Applicants will now have to submit a total of 23 documents, instead of previous 14 documents, with their applications to the Customs Bond Commissionerates for getting bond licences. According to the new conditions, the size of the factory and warehouse must be at least 5,000 square feet and the paid-up capital of the limited company must be Taka 1 crore for being eligible for the licence.
If the nature of ownership of the applicant entity is single or partnership, its annual turnover must be at least Taka 30 lakh. The agreement of factory rent should be for five years if the factory is established at a rented place.
TINs and private investor (PI) visa of foreign directors of the companies, whether they stay in Bangladesh or not, must also be submitted with the application, the SRO said.
It also said that the factory must have power connection in its own name.
The CBC of the NBR issues bonded warehouse licence, commonly known as bond licence, mainly to 100 per cent export-oriented industries offering duty-free raw materials import benefits with some conditions. The conditions include that manufacturers must export the finished goods produced using the raw materials and in no way, they should sell the raw materials in the local market.
The licences are issued under the rules framed in 2008.
Previously, exporters were required to submit documents related to registration, taxpayer’s identification number, value-added tax licence, trade licence, fire licence, recommendation letter of the trade body concerned, design of the proposed bonded warehouse, deeds of factory ownership or lease document and a declaration of being compliant.
Officials said that the conditions could not prevent fake companies from getting bond licences which was the major reason for misuse of the facility as there are allegations that many companies sell raw materials imported under duty-free facility in local market instead of producing goods and export.
This practice deprives the revenue board of its due revenue while creating imbalance in local market as commercial importers cannot compete with duty-free raw materials, mainly when it comes to fabrics for readymade garment industry.
A senior customs official said that the size and nature of the economy had also expanded significantly. So, there should be restrictions in offering the duty-free facility to prevent misuse and ensure that only genuine exporters can avail the benefit, he said.
According to the SRO, the price of any machinery should be at least Taka 40 lakh if the machinery is second-hand and the life span of machinery and spare parts should be at least 10 years. Further, audit reports of all the sister concerns of the applicant factory must be updated, it said.
The provisions came into effect from 1 July, the day the new fiscal year began, it added.
Till now, some 6,000 export-oriented manufacturers have obtained bond licence from the CBC Dhaka of which, around 4,000 bond licences currently remain active. There is another bond Commissionerate in Chittagong under which the number of bond licensees is around 1,400.
Such random misuse along the lines of non-compliance with legal provisions of auditing, has forced the Government to come down heavily on the errant entities lately. As per recent reports, 750 bond licence holders were stopped from export-import activities for flouting rules.
The customs authority has locked Business Identification Numbers (BINs) of 750 apparel units for their failure to submit export-import documents for auditing. As per the customs rules, exporters cannot carry out the export-import activities without BINs.
In a recent survey, the customs bond Commissionerate, Dhaka found that some exporters were not complying with the legal provisions of auditing during the last three years. Without export-import details, the bond Commissionerate is unable to conduct an audit of the exporting companies.
Through the audit, the customs can detect abuse of the duty-free facility by matching the volume of imported raw materials with the number of exports of a particular company. As per the customs law, businesses having bonded warehouse licences are supposed to place the export-import details to the customs bond authority once a year.
According to the official data, there are some 6,684 bond licence holders who are allowed to import raw materials under the duty-free facility for exporting finished products. Of the licence holders, some 3,014 are now active while the rest are either non-existent or the customs locked their BINs for some irregularities. Officials said some 1,500 exporters submit export-import details for auditing annually.
In the recent field survey, the bond Commissionerate has also found that some 172 exporters having licences do not exist in their said location. The wing has also locked their BINs and started taking legal proceedings against the companies. “We have found the companies have not submitted the documents for audit work during the last three years,” underlined Commissioner of the Customs Bond Commissionerate (Dhaka), Shawkat Hossain.
Meanwhile, Mohammad Hatem, First Vice-President of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), reportedly said such non-compliance happens due to loopholes in the rules of the Bangladesh Bank (BB) in the matters of the opening of letters of credit.
Exporters try to avoid visiting the Bond Commissionerate to stay away from unusual hassle, claimed the BKMEA First VP.
To wind up, one has to accept, till full-proof and concrete steps are taken, that not only will local businesses keep bleeding because of such malpractices, even the Government’s exchequer would continue to lose out on valuable revenue as well.
