Further cuts in export incentives, RMG fears rise in costs

The Bangladesh government has reduced the special incentive for the Ready-Made Garment (RMG) sector, the country’s largest export earner and biggest beneficiary of incentives, from 0.5% to 0.3%. This move is part of the government’s plan to prepare the private sector for the country’s expected graduation from the Least Developed Country (LDC) status in 2026. The incentive reduction, effective from June 30, 2023, to June 30, 2025, also applies to various other sectors, including jute and jute goods, leather and leather products, frozen fish, agro products, and more. The RMG sector, however, has expressed concern over the decision, fearing a decrease in exports during the current crisis period.

Interestingly, the circular raised the incentive for crust leather from 0% to 6%, making it the only product to see an increase in incentive. Incentives for venturing into new markets have been reduced by 1 percentage point to 2%. Before the circular took effect, the highest incentive rate was for agro products, potatoes, and processed meats at 15%, which has now been reduced to 10%.

The Bangladesh Bank circular states that the government has been providing cash incentives for 43 export items, with a substantial 65% of these cash incentives primarily benefiting the garments and textiles industry. Exporters in the RMG sector have expressed their dissatisfaction with the decision, arguing that it comes at a time when they are already facing increased costs due to factors like increased gas and electricity prices, workers’ wages, and bank loan interest rates. They also argue that the cost of applying for the reduced incentive exceeds the incentive itself.

Critics of the decision suggest that exporters have already benefited significantly from the devaluation of the taka against the dollar and that they should confront the challenges they are facing. Some have proposed that the government should implement similar policy benefits for the RMG industry as those offered by competing countries like India, China, and Vietnam. Others have suggested that the government should enhance various policy benefits for the RMG industry rather than reducing incentives.

Data from the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) shows that the five items deprived of cash incentives contributed $25.95 billion in exports, or 46.71% of the total export figure for the last fiscal year. The figure is 55.22% of the total RMG exports. The circular mentions that these cash incentives are considered as Subsidies Contingent upon Export Performance, and according to the Agreement on Subsidies and Countervailing Measures (ASCM), no subsidy/cash incentives will be allowed after graduation from the LDC status.

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