RMG makers seek increase in incentive rates

Country's apparel makers have sought increase in the rates of incentive to help the largest export-earning sector sustain its growth pace.

They have demanded that the government raises the rate of special incentive to 1.0 per cent from the existing level of 0.30 per cent and increase the incentive to 4.0 per cent for small and medium units from the present rate of 3.0 per cent.

Besides, the apparel makers also want a 2.0 per cent cash support as alternative to the duty drawback facilities against the existing rate of 1.5 per cent.

The Bangladesh Garments Manufacturers and Exporters Association (BGMEA) made the proposals to the Ministry of Finance (MoF) in a letter, dated August 11 last, according to the informed circles.

In the letter, the BGMEA argued that even if the rates of incentive are raised, government's spending to this effect would not increase.

The association has estimated a US$ 40 billion worth of earnings from the RMG sector for the current FY 2025-26 while the government would require an approximate Tk 50.60 billion as Incentive for the current fiscal, as per the existing rate of US dollar at Tk 123.

The BGMEA explained that even if the incentive rate is increased in the proposed three sectors, the total incentive amount for the FY 2025-26 would be lower than that of the received amount in the FY 2022-23.

The government provided Tk 56.96 billion to the mentioned sectors in the FY '23, it mentioned.

BGMEA Vice President Md. Shehab Udduza Chowdhury said: "We recently met with the finance secretary and requested the government not to reduce the cash incentive rate now."

The BGMEA in its letter said export incentives are being cut as per the rules of the World Trade Organization (WTO)

However, as per the decision of the 13th Ministerial Conference of the WTO held in Abu Dhabi in 2024, there is no obstacle to continuing all export incentives for 3-year after LDC graduation, it mentioned.

So, the government should enhance the rate of incentive, taking the socio-economic importance of the RMG industry and other emerging situations into consideration.

According to the central bank, RMG exports reached Tk 3,690 billion in the FY 2023-24 while the total investment in the apparel industry is now estimated at about Tk 2400 billion.

The government had reduced export incentives/cash incentive against exports in two phases, i.e. in February of the last FY 2023-24 and at the beginning of the FY 2024-25.

The export-oriented apparel industry is now facing various challenges including the US reciprocal tariffs and the impact of the Russia-Ukraine war, apparel makers said.

The BGMEA vice president said: "We have proposed to increase the special incentive rate to 1.0 per cent from the current 0.30 per cent rate which does not even cover the cost of photocopying."

"We have also proposed to increase the additional incentives for the products made of local yarns and fabrics to 2.0 per cent from the existing level," he added.

In the past years, workers' wages and annual increments and costs for electricity, diesel and transportation have already gone up in recent times, the BGMEA leader said. Besides, the price of gas has recently been increased for new factories, which, according to industry insiders, would discourage investment, thus affecting the sectors' growth.

Apart from that, interest rates on bank loans have now increased to 14-15 per cent, the apex trade body of the country's RMG industry said in its letter.

The imports of capital machinery (LC settlements) for the apparel sector decreased by about 24.38 per cent in the first ten months of the last fiscal, it said.

Besides, the cancellations of transshipment facilities by India and the restriction on garment exports to India through all land ports are a matter of concern for the country's RMG sector, it said.

According to the letter, the country's apparel sector annually provides Tk 37 billion as source tan on exports, that of Tk 22 billion on exports of local raw materials, Tk 5.20 billion as income tax on cash incentive, Tk 6.0 billion as tax at source on VAT, stamp duty, freight forwarders, etc.

The industry also spends, among others, Tk 800 billion as labor wages purpose, Tk 75 billion as interests, charges and commissions to the banking sector, Tk 60 billion as utility charges and Tk 55 billion as transportation costs.

The textile and garment industry contributes about 82 percent to the country's total export earnings and employs about 10 million people directly and indirectly.

At a meeting held on August 10 last, RMG exporters also requested the government to restore cash incentives that were provided in FY 2022-23.

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