NBR abandons plans to cut tax for AC, fridge and bike makers

The tax administration backtracked from its decision to levy a 5 percent tax on incomes generated by manufacturers of motorcycles, air conditioners and refrigerators until 2032, raising it to the previous rate of 10 percent.

The 10 percent tax rate will be effective from July 1, the start of the 2024-25 fiscal year, according to a gazette notification issued by the National Board of Revenue (NBR) on Sunday.

Around a month prior, on May 29, the NBR issued a gazette announcing that the income tax rate for manufacturers of such products would be reduced to 5 percent for the next 12 years.

But within the span of a month, the revenue administration issued a new gazette, abolishing the statutory regulatory order issued at the end of May.

A senior official of the NBR said: "We had issued May's gazette mistakenly. But the NBR corrected the gazette before the effective start date of July 1."

The NBR began offering tax privileges to manufacturers of freezers, refrigerators and motorcycles in July, 2009, providing the benefit for 12 years at a rate of 5 percent.

The benefit continued thereafter, but the tax rate was raised to 10 percent from FY21 and air conditioners were also included.

The facility was provided to boost domestically manufactured products with the "Made in Bangladesh" tag. If manufacturers were not afforded the benefit, they would be taxed between 20 to 27.50 percent.

On a positive note, the NBR scrapped a condition which stated that manufacturers would have to invest 10 percent of their tax-exempt income within three years to expand production capacity, purchase machinery, or construct physical infrastructure.

Manufacturers hailed the step, stating that the benefit would be instrumental to the development of the sector.

"It's a good move to extend the benefits up to 2032 and will encourage many entrepreneurs to invest in these sectors," said Hafizur Rahman Khan, chairman of Runner Group.

Rahman also said scrapping the provision that obligated manufacturers to invest 10 percent of the exempted income was an industry-friendly decision.

Perhaps the government has withdrawn the obligation given the current economic crisis and overall situation in the country, he opined.

Echoing those sentiments, Nurul Afsar, deputy managing director of Electromart Limited, which manufactures and retails GREE ACs, said: "We can now invest as we wish. So, diversification will also be possible."

"Many companies used to invest since they were obliged to do so despite there being no need for it. It's a good move for us," he said.

At present, 10 local companies are making refrigerators, freezers and ACs.

Locally-manufactured ACs are starting to dominate the domestic market due to reasonable prices. Over the past decade, the AC market has been growing steadily in Bangladesh due to the country's hot and humid climate.

Meanwhile, sales of chest freezers declined by 13 percent ahead of this year's Eid-ul-Azha as consumers battled persistent inflationary pressures as well as an increase in the prices of home appliances, according to industry players.

About 10 companies are involved in motorcycle manufacturing and assembling, with around 400,000 motorcycles being sold annually, according to industry people.