Al Amin :
The existing 15 percent Value-Added Tax (VAT) on domestically manufactured recycled fiber and its raw materials will continue in the next fiscal year.
The National Board of Revenue’s (NBR) insistence on maintaining this tax for recycled materials used by spinning mills is being criticized by industry insiders.
The industry insiders argued that the policy will prompt spinners to import raw materials, which are exempt from tax, rather than using domestically recycled fibers.
This decision is seen as a significant barrier to the growth of the recycled fiber sector, added the industry insiders.
The Bangladesh Garment Manufacturers and Exporters Association (BGMEA), Bangladesh Textile Mills Association (BTMA), and the Bangladesh Trade and Tariff Commission (BTTC) have collectively urged the NBR to withdraw the VAT on domestically recycled fibers.
They believe that encouraging the use of recycled fibers in garment manufacturing is crucial for the industry’s sustainability and growth.
However, the tax authority is unwilling to exempt the sector due to pressure from the International Monetary Fund (IMF), according to NBR officials. The NBR has decided against granting new tax exemptions for any sector.
Under the existing VAT law, dealers purchasing locally obtained fibers or clips must pay a 7.5 percent VAT, plus an additional 15 percent VAT at the point of sale. In contrast, imported virgin cotton is VAT-free under the bond facility.
Currently, twenty-three businesses are engaged in recycling textile waste in Bangladesh, with an overall output capacity of 0.22 million tons based on current investment levels.
Local production is expected to generate 0.57 million tons of textile waste, potentially saving $1.0 billion in costs by reducing the need for imported virgin cotton.
Recycled polyester and synthetic fibers are increasingly replacing virgin cotton, driven by the growing demand from well-known brands that mandate the use of recycled materials in their products to promote environmental sustainability.
Starting in 2025, clothing products must contain at least 30 percent recycled fibers, according to a directive by the European Union. Additionally, the EU has announced increased import charges on noncompliant clothing.
Local producers of recycled fiber believe they may reduce the country’s dependency on imported cotton by employing recycled fibers as raw materials in spinning and composite mills.
The National Board of Revenue Statutory Regulatory Order (SRO) No 136 states that the manufacture of certain goods and services as well as imports is now exempt from VAT.
Due to this double taxation, where VAT is paid during both the production and sales stages, producers of recycled fiber are experiencing a rise in production costs.
BGMEA immediate past President Faruque Hassan told The New Nation, “It is possible to manufacture $5 billion worth of clothing from recycled fibres. As a result, a huge amount of foreign exchange spent on yarn and fabrics would have been saved.”
But the decision will be a big barrier to flourish the potential sector in the country, he added.
