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Taxes taking toll on RMG sector!

by Apparel Resources

03-August-2018  |  6 mins read

readymade garment industry
Image Courtesy: money.cnn.com

With general elections round the corner, Bangladesh Finance Minister recently presented the National Budget for Financial Year 2018-19 before the Parliament. There were expectations that the Budget would be industry and people-centric, considering the fact that it’s almost time to go to the hustings, and a popular and pro-industry budget could go miles in deciding the electoral fate. However, certain facets of the Budget seem to have touched the raw nerves of the apparel industry.

In a nutshell, corporate tax rate for apparel manufacturers and exporters has been hiked to 15 per cent from existing 12 and for green factories 12 per cent from the earlier 10. Also, there is another separate 12.5 per cent tax structure proposed for the public limited companies, which is seen as a move to encourage the participation of apparel units in the capital market – which is considerably low in Bangladesh. The only saving grace from the entrepreneurs’ view point has been the government’s stance on climbing down from the proposed 1 per cent source tax and reinstate to earlier 0.7 per cent, which however, has not been waived off completely, as has been the popular demand of the garment makers.

“The increase in corporate tax from 12 to 15 per cent is not a positive development from the industry’s perspective. At a time when surviving as a manufacturer has already become tough due to price pressure, falling margins and rising operational cost, etc., increased corporate tax would only add to our woes. Its impact will be even more on the smaller players, many of who may have to shut shop for good. I am not saying the bigger ones would not be affected, but for them, there are various ways and means to minimise the loss,” maintains Md. Fazlul Hoque, Managing Director of Plummy Fashions Limited (PFL) speaking to Apparel Resources.

Located at Narayanganj, 20 kilometres south of capital Dhaka, Plummy Fashions is the highest-ranked green knitwear facility globally.

Hoque also rules out any advantage that one might think a manufacturer would enjoy on account of owning a green facility. “Truth be told, the green factories would be affected more. In the first place, the investment for making a green unit is very high and so are the overheads and maintenance cost compared to a regular factory. I think the buyers need to rethink their offer prices, more so when a new minimum wage is also in the offing. I am not saying that the buyers are making huge profits as their selling price also needs to be very competitive considering the global scenario, but may be they could compromise a bit on their profits to ensure the garment manufacturers are also on an even keel”.

Mir Gulzar-A-Alam, CEO of Western Fashion Tex & Sourcing echoes the same sentiments but offers an innovative solution to cut costs and stay competitive. He points out, “This is going to impact the profits and the industry cannot recover from it until it cuts expense by reducing the highly-paid foreign employees engaged in the industry. Bangladesh has been able to establish itself as a quality garment supplier and new buyers are coming to the country even as we continue to explore new markets.”

It may be mentioned here that as per an unpublished study of Dhaka University and The Centre of Excellence of BGMEA, there are around 34,340 expatriates holding top positions in RMG factories, who are remitting around US $ 2.36 billion in salary and allowances. Leave aside the ones employed in numerous buying entities and are still unaccounted for.

As per Brigadier General Aftab Uddin Ahmed (Retd.), CEO of the Centre of Excellence for Bangladesh Apparel Industry (CEBAI), there would be implications for sure and more so, for those who are yet to make it to the big league. “Some of the ways to deal with this hike could be to increase efficiencies and go for value additions,” advices CEO of CEBAI.

The apex garment manufacturers’ body BGMEA is reportedly in parleys with the government to reassess the corporate tax hike. Considering the importance of the RMG sector for the country’s economical growth and prosperity, one would not be surprised if the government rolls back its tax increase move so as to provide some respite to the garment industry, which is currently reeling under multiple challenges.