NBR plans to come out of zero-duty facility

The National Board of Revenue (NBR) is considering coming out of the zero-duty facility on imports and imposing a minimum of 1% customs duty from the next fiscal year, according to sources with knowledge of the matter.

Some food items, food grains, agricultural inputs, including fertiliser, and some basic industrial raw materials currently enjoy zero-duty benefits. If the NBR withdraws the benefit, it may lead to high costs, eventually forcing consumers to foot the bill.

The revenue authority also plans to end the import facility with zero duty for parliamentarians. Currently, MPs enjoy a duty-free vehicle import facility, which is subject to more than 500% duty.

According to sources, the NBR wants to impose a minimum duty on car imports by lawmakers starting in the next fiscal year.

"We have a meeting with the prime minister on 14 May, where we will raise the issues. After receiving the prime minister's directives, we will finally decide whether the facility will be withdrawn or not," a senior NBR official told The Business Standard.

He said they had a meeting with Finance Minister Abul Hassan Mahmood Ali at the NBR headquarters on Sunday, "where we already discussed the main proposals that are under consideration for change".

Sources said during meetings with the NBR last week, IMF officials suggested coming out of the tax exemption and zero-duty regime.

Business leaders, however, expressed concern over the NBR plan, saying if duties increase indiscriminately, it will undermine the country's business and exports, which could also lead to further inflation hikes.

Mohammad Hatem, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association, told TBS, "Food, fertiliser, and some basic raw materials currently enjoy duty-free facilities. If the government withdraws the benefit, prices of those items may increase, and Bangladesh's industrialization may also be hampered, leading to an import-dependent country."

In the meeting, the finance minister suggested that the NBR should not fully withdraw tax exemptions for the 27 information technology-enabled services (ITES) that are scheduled to end this fiscal year. Instead, he proposed finding a way to continue the tax exemption facility for that sector in a modified form.

He also recommended balancing the International Monetary Fund's recommendations with the country's economic conditions, according to sources present at the meeting, said a NBR official.

Sources indicated that the finance minister is scheduled to present the next budget in parliament on 6 June. Prior to this, he met with NBR officials to gather proper information about fiscal changes.

State Minister for Finance Waseqa Ayesha Khan and NBR Chairman Abu Hena Md Rahmatul Muneem were also present at the meeting.

According to NBR sources involved in budget planning, since 2011, the revenue authority has been granting tax exemptions on IT-enabled services, with the period extended every three to five years.

If the exemption is revoked, the income of the respective IT companies could be subject to as high as a 27.5% corporate tax.

Apart from tax exemptions, companies in the IT sector also benefit from reduced VAT rates. While the standard VAT rate stands at 15%, the IT sector currently enjoys a reduced VAT rate of 5%.

Entrepreneurs in the IT services sector expressed concern that the sector's investment, growth, and exports might dwindle if the exemption is withdrawn.

In March, leaders from five IT-related organisations penned a letter to the finance minister, urging the extension of the tax exemption facility until 2031.

Suggestions to continue initiatives to protect local industry

Sources from the NBR also said the finance minister suggested the NBR uphold its initiative to protect and boost local industries, while also recommending not imposing a heavy tax burden on consumers.

The NBR already provides support, such as value-added tax and income tax exemptions, as well as reductions in import taxes, to boost local industrialisation.

"NBR has already provided significant tax benefits for electronics, home appliances, mobile phones, and other potential items. As a result, some sectors have been able to reduce import dependency," said an NBR official.

"Now we are planning to phase out this support for sectors that have already reached a certain level," he added.

He said the sectors that have failed to flourish despite the tax exemption facility are also being considered for the withdrawal of these benefits.

"After meeting with the prime minister, we will finalise the plan," he added.