Exporters getting competitive with tax waivers, import-duty cuts

Bangladesh moves forward with new policy measures as guardrails around its export sector as the country is destined to graduate from the least-developed country (LDC) category and thus forfeit marketing privileges.

The swap comes amid a looming phase-out of cash subsidies for export products, which will no longer be permissible under World Trade Organization (WTO) rules once the graduation becomes effective, according to the finance ministry.

Currently, several non-apparel sectors - leather and leather goods, pharmaceuticals, agro-processed products, light engineering, jute and jute goods, and IT/ITES - enjoy varying dollops of cash incentives handed out to support export competitiveness.

But under the WTO Agreement on Subsidies and Countervailing Measures (ASCM), such direct export-linked cash assistance must be withdrawn after graduation.

In line with this requirement, the government has already initiated a gradual reduction in the cash-incentive rates.

"To counter this impact, the Chief Adviser's Office has prepared and sent forward three proposals focusing a transition package that prioritises export diversification and competitiveness," says an official at the monitoring cell of the finance division.

The first two proposals suggest continuing limited cash incentives during the transition period for six priority sectors to avoid any sudden shock for exporters.

The third proposal moves away from subsidies and calls for introducing alternative support mechanisms, including tax rebates and exemptions for exporters in priority sectors, reduced import duties on raw materials, machinery, and inputs essential for export production and policy incentives for investors through the creation of specialised zones and industrial clusters.

The official says the idea is to shift gradually from direct cash support to a more sustainable incentive framework.

Such a package of substitutes would help exporters remain competitive in global markets while adhering to WTO obligations.

The government has also decided to strengthen institutional coordination.

An inter-ministerial committee headed by the Cabinet Secretary has been formed to assess in detail what can be done to enhance export capacity in four promising sectors - leather, jute, agro-processing, and pharmaceuticals.

The committee's first meeting is expected soon, and discussions are likely to be expanded to include light engineering and IT/ITES as well.

In parallel, the Bangladesh Investment Development Authority (BIDA) is drafting a new Foreign Direct Investment (FDI) Incentive Policy.

The policy will outline non-cash incentives for investors, particularly in specialised economic zones, which the Finance Division considers crucial to attracting both domestic and foreign investment into emerging industries, the proposals read.

Tax-related proposals, such as rebates and exemptions, will be reviewed and implemented by the National Board of Revenue (NBR).

The NBR would explore sector-specific tax breaks to ensure smooth graduation without disrupting export earnings.

Professor Dr Mohammad Safiqul Islam, chairman of the Department of Economics at Jahangirnagar University, says the transition package is vital as Bangladesh's export base is still heavily dependent on readymade garments, which account for over 82 per cent of earnings.

Without diversification, the economy risks external shocks in the post-LDC era.

By promoting pharmaceuticals, ICT, agro-processing and light engineering alongside traditional sectors, the country should build resilience and expand market access globally, he told The Financial Express.

"While Bangladesh prepares to phase out cash subsidies as per international rules, it should simultaneously work on a comprehensive mix of tax incentives, duty relief, and investment-friendly policies to cushion the transition," the economics professor suggests.

He says if it takes a few more years to cope, the government should delay the graduation in that case.

Bangladesh Jute Spinners Association (BJSA) chairman Tapas Pramanik says the sector currently receives 3.0-percent cash support for yarn, 5.0 per cent for hessian, sacking, fabrics, and 10 per cent for food-grade yarn, food-grade jute bags, and other diversified products.

He says that the government has already informed them that these facilities will end after November 2026.

"We want the government to consider the jute sector as part of agro-processing and provide it with the same kinds of facilities," he adds.

Pramanik points out that the jute factories now pay 13-14-percent interest on loans whereas farm loans should not exceed 2.0 per cent as a farm sector.

The sector, he feels, will need tax rebates, electricity subsidies, and measures to boost raw-jute production by supporting farmers.

Meanwhile, the country's top trade organisations have asked the government to request a three- to five-year delay in Bangladesh's graduation from the world's poor-country club (LDCs).

They alert that important sectors like garments and pharmaceuticals could face problems if the transition happens too soon.

According to them, Bangladesh still needs more preparation before moving into the developing-country category.

If the change is made too early, it could hurt exports and raise the cost of foreign borrowing.

The comments have come at a press conference titled 'LDC Graduation: Challenges Ahead', organised by the International Chamber of Commerce (ICC) Bangladesh along with 15 major trade bodies and chambers in the country.

Md Mahbubur Rahman, president of ICC Bangladesh, says businesses and trade bodies fully support the graduation. But, he stresses the need for a three-to-five- year extension of the cusp of transition.

Bangladesh is set to graduate in November 2026, as it has already met all three UN requirements--Gross National Income, Human Assets Index, and Economic Vulnerability Index--in two consecutive reviews.

Business leaders have called the achievement a "matter of national pride" but warn that the process must be carefully handled.

Citing examples, Mahbubur Rahman says that the Maldives had delayed its graduation for eight years, and Botswana had taken 20 years.

Similarly, Vanuatu, Angola, Myanmar and Bhutan also postponed their transitions. Bangladesh, he adds, can learn from their experiences to ensure a smoother shift.

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