VAT on low-cost shoes threatens cottage industry

Staff Reporter :

Small-scale footwear manufacturers have urged the interim government to urgently reinstate the value-added tax (VAT) exemption on low-cost rubber and plastic shoes priced at Tk 150 or below, warning that the continuation of the current 15 percent VAT is endangering thousands of cottage industries and the livelihoods of low-income workers across the country.

Speaking at a press conference held at the Dhaka Reporters’ Unity on Tuesday, leaders of the Bangladesh Footwear Manufacturers’ Association (BFMA) said the abrupt policy shift is severely impacting the cottage footwear sector, once seen as a promising avenue for rural entrepreneurship and poverty alleviation.

“The removal of the VAT exemption has significantly increased production costs, curtailed consumer demand, and forced hundreds of small factories to shut down,” said Mohammad Fazlu, president of the BFMA. “As a result, thousands of jobs have been lost-particularly among informal workers and marginalised communities who depend on this sector for their livelihood.”

Fazlu highlighted that since 2016, the government had supported the low-cost footwear industry by exempting VAT on rubber and plastic shoes. The move had encouraged growth in the sector, enabling producers to cater to large segments of the low-income population, including hawkers, rickshaw pullers, farmers, and daily wage earners.

However, the National Board of Revenue (NBR) revoked the exemption partway through the current fiscal year by issuing a Statutory Regulatory Order (SRO) on 9 January 2025. Fazlu criticised the decision as abrupt and destabilising, saying it disrupted supply chains and left small manufacturers without sufficient time to adapt.

The BFMA also expressed disappointment that the proposed national budget for FY2025-26 has retained the current VAT regime, overlooking repeated appeals from small-scale producers.

“Our footwear is not a luxury item-it is a basic necessity for the underprivileged. Imposing taxes on such products amounts to taxing the poor,” said Fazlu, urging the government to reverse the policy to protect jobs, sustain rural industries, and ensure continued access to affordable footwear for millions of people.

The association warned that without policy intervention, the sector’s decline will have far-reaching economic and social consequences.