Published :
Updated :
For all latest news, follow The Financial Express Google News channel.
The government is considering exempting locally produced recycled fibre and its raw materials from Value-Added Tax (VAT) in a move to protect the industry and eventually reduce dependence on cotton imports, according to sources.
To this end, the Bangladesh Trade and Tariff Commission (BTTC) recently proposed a full VAT waiver for both production and service stages for domestic producers, they added.
Under the existing VAT structure, traders pay 7.5 per cent VAT on the purchase of locally collected clips or fibres, and an additional 15 per cent VAT at the point of sale.
In contrast, there is no VAT on imported virgin cotton under the bond facility.
Currently, there are 23 companies involved in the textile waste recycling process. Their combined production capacity is estimated at 0.22 million tonnes based on current investment levels.
Local textile waste generation is estimated at 0.57 million tonnes, which could reduce virgin cotton import costs by $1.0 billion.
Investment in the recycling sector is gradually increasing, due mainly to rising local demand.
The use of recycled fibres, including recycled polyester and man-made fibres, is increasing as an alternative to virgin cotton. This trend is partly driven by the growing demand from world-renowned brands that have mandated the use of recycled materials in their products to protect the environment.
The European Union has mandated the use of at least 30 per cent recycled fibres in garment products from 2025. The EU has also announced higher import taxes on garments that do not comply.
Local recycled fibre producers believe they can reduce the country's dependence on cotton imports by using recycled fibres as raw materials in spinning and composite mills.
The government currently exempts VAT on imports and production of certain goods and services, according to the Statutory Regulatory Order (SRO) No 136 issued by the National Board of Revenue.
This exemption includes locally produced cotton waste and jute. However, there is no VAT exemption at the manufacturing stage for the same product garnetted stock.
This double taxation, where VAT is applied at both the production and selling stages, is pushing up the production costs for recycled fibre producers.
A senior official of the Ministry of Commerce said they asked the BTTC to submit a report with recommendations after a company applied for a VAT exemption for locally produced recycled fibres.
He said the ministry is currently working on the issue.