Source tax on exports cut by three-fourths

FT ONLINE

The government on Monday reduced the source tax on export proceeds for all sectors from 1.0 percent to 0.25 percent to help the export-oriented sector stay competitive.

The reduced source tax was made effective from Monday.

The National Board of Revenue has issued a regulatory order in this connection.

Exporters will not be able to adjust or get the refund of the source tax paid at a rate of 1.0 percent between July 1 and October 20, 2019, according to the order.

The reduced source tax rate will be valid until June 30, 2020.

Income tax officials said the source tax has been reduced following demand from the export-oriented sectors, including the Bangladesh Garment Manufacturers and Exporters Association.

Last year, exporters, except for jute and jute goods, enjoyed 0.25 percent tax on export-proceeds. However, as per the Income Tax Ordinance-1984, the standard rate of the source tax rate for exporters is 1.0 percent.

Officials said the NBR will lose Tk 20 billion as source tax this year from the apparel sector due to cut in the tax rates.

The apparel sector contributes more than 83 percent of the total export income of the country.

NBR officials said there was an instruction from the government high-ups to reduce the source tax for exporters after sluggish growth in export income.

Overall export earnings fell by 2.94 percent during the first quarter period of the current fiscal year, according to data from the Export Promotion Bureau (EPB).

The NBR slashed the source tax last year in two phases to 0.60 percent and later to 0.25 percent last year from the standard rate of 1.0 percent.

However, jute and jute goods exporters paid export tax at the rate of 0.60 percent during FY2019.

Readymade garment exporters said that the apparel sector has been losing its competitiveness in the international market due to challenges on the domestic and international fronts.

Earlier, the BGMEA president Rubana Huq, in a letter to the Prime Minister's Office, had said that the sector was facing difficulties to stay competitive due to a hike in wages for garment workers.

She said that minimum wages for apparel workers came into force from December, 2018 with a 51 percent hike in minimum wages to Tk 8,000 from Tk 5,300.

The BGMEA president could not be contacted over the phone for her comment.

During FY 2018-19, the NBR received Tk 18.02 billion as a source tax from apparel exporters.

In the July-September period of the current fiscal, the board received source tax worth Tk 5.17 billion from the RMG sector.

Md Golam Mowla, a member of the Institute of Chartered Accountants of Bangladesh, said the reduction of source tax should be given with retrospective effect from July 1, 2019.

"The government has slashed the tax to facilitate the sector. Such fiscal measures usually come into force from the first day of the financial year," he added.

It is not clear in the order whether the exporters will able to adjust the tax they paid, he added.