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The Financial Express

From an importer of cars to an exporter


File photo used for representational purpose. (Collected) File photo used for representational purpose. (Collected)

Saving foreign exchange (forex), implementing austerity measures - these are the buzzwords in Bangladesh these days. There is talk about "self-reliance" and yet the country spends over US$2.0 billion a year to import vehicles to serve the transport sector. We are practically a net-importer of all sorts of vehicles that ply our roads nationwide. The country has moved past its golden jubilee and finds itself in the grips of an impending global recession. Supplier's credit is down and industry is losing momentum. Import is down due to falling forex supply. Austerity measures exist but what is being done to stop the bleeding by way of importing products that can progressively be built in the country?

Producing vehicles is not rocket science. The 2-wheeler market took off some time ago but the 4-wheel segment is just beginning to develop. Here the market is still 95 per cent import-dependent, although there is evidence that global manufacturers are taking notice of Bangladesh. Hyundai has started assembling some vehicles to serve the market. Prior to Hyundai, a host of other companies like PHP (a large Bangladeshi conglomerate), set up an assembling plant for Malaysian Proton vehicles. Other companies have or are in the process of entering the market in the same manner. The advantages are obvious.

High taxation on imported vehicles has been a way to collect large sums of revenue for the government. Although with per capita income reaching approximately $2,800, the policy of high taxation and duties on vehicle import is no longer having the desired result of restricting vehicle import; since millions of consumers can afford to pay exorbitant sums to buy passenger vehicles. With 9 out of 10 vehicles being imported in CBU (completely built unit) form, taxes vary according to engine displacement. According to a study by the Policy Research Institute in 2021, there ae a host of different taxes applied to CBU units. For instance, custom duty (25 per cent), regulator duty (3.0 per cent), advance income tax (5.0 per cent), and trade VAT (5.0 per cent) at the port of entry. Furthermore, it should be noted that VAT (15 per cent) is charged after calculating duty and taxes paid on the base value of a vehicle, which in simple terms means that a car worth Tk100 will be worth Tk227 at retail level in the domestic market. Of course, the latest figures on the various tax and duty structure may have seen changes, the above calculation provides the general picture. Although, supplementary duty is not charged on hybrid vehicles (as these are viewed to be more environmentally-friendly), people generally tend to opt for gasoline-only engines.

CKD (completely knocked down) vehicles are slowly making their way in to the market. The government provides more incentives to companies in terms of the tax regime as a means to encouraging in-country investment, but more needs to be done. The CKD tariff structure (2019-20) tells us that supplementary duty is not applicable for CKD vehicles, while it ranges from 20 to 350 per cent for CBU units. VAT at a flat rate of 15 per cent is levied on CKD vehicles. To significantly reduce price of CKD vehicles, authorities need to rethink customs and regulatory duty structures. There is much debate about the value of reconditioned vehicles (95 per cent of imported vehicles) at the port of entry. There exist differences of opinion between customs and importers on the actual value of cars. There also exists anomalies that often make some newly built CBU units to be cheaper than reconditioned vehicles.

If one looks at the size of car market in Bangladesh, it is estimated that there are more than 350,000 passenger vehicles on our roads. Available data state that the "import of private passenger cars have risen significantly from 9,224 in 2012 to 21,959 in 2017; a rise of 138 per cent in five years. Sale was mostly prominent during 2015-2017 period".  BRTA data in 2018 stated that an average of 50 new cars were hitting the streets of Bangladesh every day. Yet, vehicle penetration as per population remains abnormally low in the country. Where there are three cars per 1,000 population, Malaysia has 897 cars per 1,000. While the authorities tend to blame the number of passenger vehicles for the dreadful traffic conditions in the city, they often fail to appreciate that there is no electronic traffic management system in operation; city roads are governed by lawless drivers who do not bother to follow existing traffic laws; roads are home to human-drawn means of transportation that compete for road space alongside motor-driven vehicles.

The fundamental question is whether Bangladesh intends to become a major manufacturing hub for automobiles. Previously it was said that the market is too small for big manufacturers. That brands like Hyundai have taken the first step to set up an assembly plant counters that argument. The second argument is the lack of a skilled labour force - labour force can be trained up. Even in the absence of any formal training, thousands of teenagers and young men have been working in Dholaikhal area since independence (to replicate serious pieces of industrial-grade machinery), so that argument also falls flat. Building an eco-system with backward linkage is possible, provided the policies are there to support it. Finally, allowing manufacturers to export vehicles produced in the country should not be an issue. All that has been lacking is a movement at the top of the decision-making process to priortise this issue. For decades, neighbouring India cut off import of vehicles so that domestic manufacturers could mature their designs and today, we see Indian manufactured cars being exported. Malaysia taxed foreign import of vehicles sky high to develop the national brand Proton, and that brand too is being exported. What is stopping Bangladesh?

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