Bangladesh Government Mulls Halving Export Tax on Leather Goods
Last Updated on March 11, 2024 4:27 am
In a move aimed at enhancing the competitiveness of Bangladesh’s leather sector, the government is considering a reduction in the source tax on leather goods exports from 1% to 0.5%. The potential tax cut is anticipated to boost the leather industry, which has faced challenges in accessing certain markets and competing on pricing due to various factors.
Sources at the National Board of Revenue (NBR) revealed that a statutory regulatory order (SRO) is in the works and will be issued soon to implement the proposed tax reduction. Currently, all export products, including leather goods, are subject to a 1% source tax in Bangladesh.
The decision comes in the wake of the government’s reduction of cash incentives for export products in late January, which also led to the elimination of leather incentives. The proposed tax reduction has been well-received by leather goods exporters, providing a glimmer of hope for the sector.
Tipu Sultan, Managing Director of Bengal Leather Complex Limited and former president of the Bangladesh Finished Leather, Leathergoods, and Footwear Exporters’ Association, welcomed the potential tax relief, stating, “Our sector has fallen into a dire situation after the cash incentive was abolished. If the export tax is reduced in such a situation, it will give us some breathing space.”
Despite its potential, Bangladesh’s leather exports have faced challenges, including limited access to certain markets due to the absence of a globally recognized Leather Working Group certificate, symbolizing environmentally friendly production practices. Moreover, existing export destinations often offer lower prices for Bangladeshi leather goods.
In the fiscal year 2022-23, Bangladesh exported leather and leather goods worth $1.25 billion, slightly down by 2% from the previous fiscal year. Taxes totaling over Tk130 crore were collected on exports at a rate of 1% during this period. However, in the initial eight months of the fiscal year 2023-24, export earnings from these products amounted to $713 million, marking a 14% decrease compared to the same period last year, with tax revenue exceeding Tk75 crore.
In a related development, the NBR recently issued an SRO on March 4, stating that export sectors with taxes below 12% could qualify for reduced tax rates upon providing evidence. This move aims to create a more flexible tax structure for export-oriented industries, allowing them to pay taxes at rates proportionate to their overall tax burden.