Local textiles face unequal race amid bond abuse

Bangladesh's textile industry is facing mounting pressure from duty-free imports, alleged misuse of bonded warehouse facilities and unequal tax treatment, raising concerns over the survival of domestic mills and thousands of jobs.

The concerns have gained fresh urgency after the Customs Intelligence and Investigation Directorate (CIID) detected preliminary evidence of Tk269.48 crore in duty and tax evasion involving six bonded textile factories in Narayanganj this week.

*    BTMA has around 1,800 member mills investing around $32b
*    Local mills once supplied $12b products to domestic market
*    Their current share of domestic market dwindles to $7.5b 
*    CIID detects preliminary evidence of Tk269.48cr in duty and tax evasion 
*    A BTMA director says the survival of local industries over the next 5 years may be threatened

Investigators found discrepancies between the actual stocks of yarn, fabrics and chemicals and the quantities recorded in company registers and the Customs Bond Management System. 

The companies are suspected of diverting duty-free imported materials into the domestic market instead of using them for export production.

The investigation is still underway, and the estimated revenue loss may change after further verification.

The latest findings have renewed questions about whether the bonded warehouse system, originally introduced to support exports, is being used in ways that put local manufacturers at a disadvantage.

Bangladesh's textile industry supplies yarn and fabrics to garment factories and produces materials for the country's domestic clothing market. It also supports banking, transport, shipping and other businesses.

According to the Bangladesh Textile Mills Association (BTMA), the primary textile sector has around 1,800 member mills, including spinning, weaving and dyeing-printing-finishing factories. 

The sector has an estimated investment of around $32 billion. But local manufacturers say their domestic market share has been shrinking.

They argue that while domestic mills have to pay taxes and VAT on production inputs, export-oriented factories enjoy duty-free imports and other fiscal benefits.

This creates a cost difference between manufacturers producing for local consumers and those producing for foreign buyers.

Local millers say they pay VAT on yarn, electricity and gas used in production, while export-oriented factories enjoy exemptions on eligible imported raw materials and production inputs under existing export-related arrangements.

The government has introduced incentives to encourage garment exporters to purchase yarn and fabrics from local manufacturers.

The move was intended to encourage domestic sourcing and strengthen local value addition, but bond misuse is making this step useless.

According to industry estimates, local textile mills once supplied around $12 billion worth of products to the domestic market. 

That figure has reportedly fallen to between $7.5 billion and $8 billion, while around $4 billion worth of demand is being met through duty-free imported materials sold in the local market.

If these imports enter the domestic market without payment of applicable duties and taxes, local mills face competition from products that do not carry the same production costs.

The consequences are already visible in the textile industry. Many mills are operating below capacity, while some manufacturers have reduced production because of weak demand, rising energy costs and financial pressure.

The sector's problems also have implications for employment, bank loans and industrial investment.

Mohd Khorshed Alam, a director in Bangladesh textile Mills Association (BTMA) said the present situation could threaten the survival of local industries over the next four to five years if corrective measures were not taken.

Alam said local textile mills were supplying clothing materials for Bangladesh's domestic population but had to bear VAT and other production costs, while export-oriented factories enjoyed significant tax and duty exemptions.

He argued that domestic mills were saving foreign exchange by producing fabrics locally that would otherwise have to be imported.

Alam called for stronger monitoring of bonded warehouses and a more balanced tax and incentive policy to ensure that local industries can compete and survive.