Export incentive cut now from 1 Feb; Australia, India, Japan tagged as new markets again

The government has revised its decision regarding cutting back on incentives for all export items, including shifting effective date to 1 February from 1 January and reinstating Australia, India and Japan as new markets which entails a cash incentive of 3%.

In a circular, issued on 30 January, the government scaled down the special incentive for the readymade garments sector from 1% to 0.5%.

The finance ministry sent a letter to the Bangladesh Bank governor, requesting to revise its earlier circular, a few hours after Bangladesh Garment Manufacturers and Exporters Association (BGMEA) leaders had paid a courtesy call on Prime Minister Sheikh Hasina at Ganabhaban in the capital on Sunday.

The central bank yesterday evening issued a revised circular following the finance ministry's notification.

Earlier, the three countries were placed in the traditional market, which only offers a 0.5% cash incentive. Bangladesh export volume to the three countries was less than $3 billion in 2023.

A few apparels, which were previously placed in the list of items that are not allowed to enjoy cash incentives, were again taken off the list in the new notification.

The apparels items include men's or boys' knitted or crocheted shirt, men's or boys' knitted or crocheted briefs and similar articles, knitted or crocheted t-shirts, singlets and other vests, jerseys, pullovers, cardigans and similar articles, and men's or boys' suits, ensembles, jackets, blazers, trousers, etc.

However the other sectors' export cash incentive cut will remain unchanged.

According to data from the BGMEA, the items under five harmonised system codes excluded from receiving cash incentives contributed $25.95 billion in exports, or 46.71% of the total export figure for fiscal year 2022-23. The figure is 55.22% of the total readymade garment exports.

In a strategic move designed to align with its graduation from Least Developed Country (LDC) status in 2026, Bangladesh unveiled a plan to cut back on incentives for all export items in the 30 January circular.

According to Bangladesh Bank data, a substantial 66% of these cash incentives, amounting to nearly Tk5,696 crore, primarily benefit the garments and textiles industry. However, the central bank released Tk8689.30 crore in the last fiscal year.

Apparel makers welcome the decision

Talking with The Business Standard, BGMEA Senior Vice President SM Mannan Kochi said the government's decision will give a breathing space for apparel exporters.

"The industry is facing many challenges, including a 179% increase in gas prices last year and the implementation of a new wage structure in December 2023. Only a few buyers are contributing to offsetting these additional costs," he said.

Mannan Kochi further said, "Rising bank interest rates and freight costs have aggravated the situation. With various international and local challenges, the industry is now battling for survival."

While acknowledging World Trade Organization regulations limiting cash incentives after the LDC graduation, the BGMEA leader emphasised the need for dialogues and prior notice before implementation of such decisions.

BGMEA Vice President Rakibul Alam Chowdhury said, "The prime minister has given us a big relief during such a challenging time."

If the government has to withdraw cash incentives after the LDC graduation, it should adjust other business costs including utility prices, to make the exporters competitive in the global market, he added.

Bangladesh Knitwear Manufacturers and Exporters Association Vice-President Fazlee Shamim Ehsan said, "The revised decision will help apparel exporters pay their workers after new wage implementation with two Eid bonuses also approaching soon."

Policy Research Institute of Bangladesh Research Director Mohammad Abdur Razzaque said sudden withdrawal of any policy support may create disruption.

The government should notify the exporters if it has to cut the cash incentives gradually from the next fiscal year, he suggested.