Published :
Updated :
For all latest news, follow The Financial Express Google News channel.
Expansion of the existing bonded warehouse facility for export-oriented industries has been under discussion for quite some time. Given its pivotal role in ensuring uninterrupted availability of raw materials for manufacturing export goods, the importance of bonded warehouse cannot be overstated. Over the decades, the system has served as a crucial pillar for the country's export growth, especially for the readymade garments (RMG) sector. However, despite its clear merits, the system has also shown vulnerabilities that call for significant reforms-chiefly, in the areas of management, transparency and oversight.
In this context, recent newspaper reports indicate that the government has renewed its interest in digitising the bonded warehouse system. Preparatory steps have reportedly been taken to this end. Years ago, the National Board of Revenue (NBR) had earlier formed a committee to propose amendments to relevant sections of the Customs Act to support automation of bond management. The committee submitted its report, suggesting a legislative and regulatory framework necessary for full-scale automation.
The NBR first undertook a project to automate the bonded warehouse system in 2017, originally targeted for completion by June 2021. Due to unsatisfactory progress, the project's timeline was extended until June 2023. However, whether the implementation has kept pace with the extended timeline remains unclear.
The bonded warehouse facility in Bangladesh emerged as a substitute for the Duty Drawback system in the late 1980s. Its inception, though promising, was accompanied with concerns about operational efficiency and susceptibility to misuse. Primarily introduced to support the garment sector, the system enabled exporters to import raw and packing materials without paying customs duties upfront, provided these materials were used in the production of exported goods. This provision significantly eased cash flow constraints for exporters and allowed them to remain competitive in global markets.
Along with back-to-back Letters of Credit (L/Cs), the bonded warehouse system helped transform Bangladesh's apparel industry into a global export powerhouse. Yet, from the beginning, the system lacked robust mechanisms to prevent abuse. Customs officials were supposed to maintain a 'passbook' that recorded all imported materials and tracked their subsequent use in exports. In theory, this was to ensure both accountability and transparency. In practice, however, these objectives have often not been realised.
Over the years, the bonded warehouse facility has been dubbed by critics a "happy hunting ground" for unscrupulous actors. Despite the existence of rules and oversight mechanisms, allegations persist that raw materials imported duty-free are frequently diverted to the local market. The pilferage not only compromises the integrity of the export system but also creates unfair competition for domestic producers.
It is against this backdrop that the push for digitising the bond management process has gained urgency. Automation is expected to bring the much-needed transparency, reduce manual errors, and curtail opportunities for manipulation. Nevertheless, reports until recently suggested that progress on the automation front remained slow and fragmented. The involvement of multiple stakeholders-exporters, the Bangladesh Export Processing Zones Authority (BEPZA) and the Bangladesh Bank (BB)-adds layers of complexity to the implementation process.
Although the RMG sector continues to be the primary beneficiary of the bonded warehouse facility, there is a compelling case for extending this facility to other prospective export-oriented sectors. Industries such as pharmaceuticals, leather, frozen foods and light engineering also rely heavily on imported raw materials. Many of these sectors have been long-time aspirants for inclusion under the bonded system, as it would significantly reduce their cost burden caused by long lead times and high working capital requirements.
In this context, automation could serve as a game-changer. A digitised bond management system would not only curb misuse but also build confidence in the integrity of the process, encouraging the NBR to widen its scope. More sectors coming under this umbrella would ultimately strengthen the country's overall export base.
However, transitioning from a largely manual system to a fully digital one will not be without its challenges. Given the deeply entrenched manual processes, teething problems are to be expected. These may include resistance from users unfamiliar with digital tools, gaps in digital literacy and the need for strong coordination among various government and private stakeholders.
To mitigate these challenges, a well-structured trial phase is crucial. Rather than adopting a piecemeal approach, the authorities should consider piloting the system on a limited scale. This would allow time to identify bottlenecks, collect feedback, and make necessary adjustments before a broader rollout. Effective training and capacity building for all stakeholders-especially customs officials and exporters-will also be essential to ensure a smooth transition.
Looking forward, the government must treat the automation of the bonded warehouse system as a priority reform. With Bangladesh set to graduate from its Least Developed Country (LDC) status and diversify its export base, efficient and transparent export facilitation mechanisms will be vital.
By embracing digitisation and expanding the scope of the facility to emerging export sectors, the country can further enhance its global trade competitiveness and lay the foundation for a more inclusive and robust export regime.