Spinners demand withdrawal of 2% AIT on cotton import within a week

Textile millers have demanded the withdrawal of the 2 percent advance income tax (AIT) on cotton imports within a week, warning of possible factory closures otherwise.

Speaking at a press conference organised by the Bangladesh Textile Mills Association (BTMA) at the Gulshan Club in Dhaka today, they pointed out that the tax was imposed in the budget proposal without consultation with the millers.

"The government should not do business everywhere, as the income of the government will in fact fall if the sector cannot perform well. At the end of the day, the impact of this 2 percent AIT is massive in business," BTMA President Showkat Aziz Russell said on the occasion.

Hossain Mehmood, chairman of the Bangladesh Terry Towel and Linen Manufacturers and Exporters Association, warned that the 2 percent AIT will increase costs by an additional 7 to 8 percent in the business and push the profit margin further down.

Amal Podder, vice-president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), criticised the move, saying the government should have taken such a decision in consultation with industry leaders.

Restrictive policies hinder growth

The call for withdrawal of the AIT comes as the primary textile sector, with an investment value of $23 billion, is facing multifaceted challenges, including increasing reliance on yarn imports from India, low gas pressure, high bank interest rates, declining working capital due to the exchange rate, and the looming US tariffs.

Md Badsha Mia, managing director of Badsha Textiles Ltd, said the government reduced the incentive to only 1.2 percent from 25 percent, hiked the gas price to Tk 32 per unit from Tk 4 per unit, raised the bank interest rate to 15 percent from single digits, and fixed the source tax at 1 percent—for which the sector is now in trouble.

Millers also noted that they suffered huge losses due to a 36 percent devaluation of the taka against the US dollar over the last three years.

Just before the beginning of the Russia-Ukraine war in February 2022, the exchange rate between the taka and the dollar was Tk 85. But the rate gradually reached Tk 122 per US dollar, causing many millers, traders, and importers to lose a massive amount of working capital, and they are now suffering from a capital shortage.

While the Bangladesh government is moving towards more restrictive policies, the Indian government has been giving many incentives to the spinning, weaving, garment, and textile sectors, giving huge advantages to Indian millers in the competition, the millers also pointed out.

For instance, they said Indian millers can sell a kilogram of yarn at Tk 15 less than Bangladeshi millers due to the incentives introduced by the Indian government. This has led to local garment exporters showing interest in purchasing Indian-origin yarn to make garment items.

"When neighbouring countries have been giving a lot of incentives in the name of different developments for the sector, the Bangladesh government is reducing the incentive rate alarmingly, for which many units are about to be closed down," said BTMA Vice-president Md Saleudh Zaman Khan.

He alleged that such restrictive policies will end up destroying the Bangladeshi primary textile sector. "I am tired of talking about all these problems."

BTMA Director Razeeb Haider also echoed a similar sentiment. "Because of faulty policies, a massive amount of yarn comes from India now. The government should immediately reverse the decision to impose 2 percent AIT."

Another BTMA Director, Md Khorshed Alam, said that of the total $23 billion investment in the sector, $18 billion is the banking sector's money.

He called on the government to check the 18 percent pilferage of gas to increase supply to industrial units.

The millers, however, acknowledged that government intervention has recently increased gas supply to the industry.