Non-RMG exporters cleared to engage in sub-contracting

Alongside the RMG sector, export-oriented entities in the non-RMG sector, particularly those with bond licences, will now be able to engage in sub-contracting through other factories to ensure timely deliveries and boost export orders.

On 23 September, the National Board of Revenue (NBR) issued an order to this effect. 

The revenue authority also relaxed a condition for sub-contracting. For instance, sub-contracting factories involved in legal disputes with the customs authority will now be able to work on orders with just an undertaking or indenture instead of a bank guarantee.

Previously, subcontracting factory owners had to pay a bank guarantee to continue work orders during legal disputes.

A senior NBR official, speaking on condition of anonymity, told TBS that since 2021, sub-contracting provisions have been available to export-oriented entities. However, the FY25 budget passed in June extended this facility only to the RMG sector, revoking it for other sectors that previously benefited.

"As a result, non-RMG sectors, particularly leather exporters, faced difficulties in securing more orders as they were not permitted to sub-contract and some factories that relied on sub-contracting were on the verge of shutting down," said the official.

"In response, the Leathergoods and Footwear Manufacturers and Exporters Association of Bangladesh recently sent a letter to the NBR and the revenue authority granted them the same sub-contracting privileges as the RMG sector," he added.

A subcontractor is a person or business which undertakes to perform part or all of the obligations of another's contract, and a subcontract is a contract which assigns part of an existing contract to a subcontractor.

Sometimes, a factory receives more orders than it can handle, and it may need to transfer part of the work to another factory, a practice recognized globally. 

However, before engaging in sub-contracting, the main contractor must obtain permission from the buyers, as foreign buyers always want to ensure that the same compliance standards are maintained in the sub-contracted factory.

Over 80% of Bangladesh's export earnings come from the RMG sector, with the remaining portion generated by non-RMG sectors, which include industries such as leather, footwear, plastics, and others.

Representatives from the non-RMG sector welcomed the NBR's initiative and said it would help them to secure more orders.

Tipu Sultan, managing director of Bengal Shoe Industries Limited, one of the country's renowned leather goods exporters, told TBS, "This decision will help us secure more orders and minimise losses."

"Sometimes we need to shift some work to another factory to manage workload and ship products in due time. Additionally, sometimes we want to take on sub-contracting work when we have a shortage of orders" he said. 

"Since I maintain compliance and have all the necessary setups with workers, why should we be restricted from getting sub-contracts?" Sultan asked.

He also mentioned, "We were surprised to learn that the non-RMG sector was not allowed to engage in or receive sub-contracting from other factories."

Amrita Makin Islam, deputy managing director at Picard Bangladesh Limited and a director of the Leathergoods and Footwear Manufacturers and Exporters Association, told TBS, "Allowing sub-contracting for the non-RMG sector is a positive move that will help us boost exports."