THE export oriented garments industry in Bangladesh have developed tremendously well in last two decades. A few hundred thousands female works and a few thousands male staff have been serving in garments industry. Thousand new entrepreneurs emerged in this industry. Many of them have initiated industrial units in other sectors. A lot of yarn producing spinning mills, fabric producing weaving mills and process industries like dying, finishing and washing plants have been established to meet the depend of export-oriented garments industry. In spite of that, many factories are producing man-made fibre, i.e., synthetic yarn and fabrics. A few industrial units in the county have been producing draw texturising yarn (DTY) consuming polyester-oriented yarn (POY) as raw material, which we call polyester yarn.
In domestic yarn market a huge quantity of DTY is being sold. Fabric of dress material for poor girls, fabric of umbrella, table cloth of decorators, mosquito nets etc. are produced by DTY. The industrial factories in Bangladesh used to import POY to produce DTY. On the other hand, a few owners of DTY factories have set up industrial factories to produce POY. This situation is viewed as industrial development. These factories consume POY to produce DTY. They do not sell POY, which they produce using imported PET chips as raw material. At present there is no customs duty, usual on imported PET chips; only 3.0 per cent import VAT, 4.0 per cent DSC i.e, a total of 7.0 per cent taxes are there. On the contrary, 15 per cent customs duty, 15 per cent VAT, 3.0 per cent import VAT, 4.0 per cent DSC, 1.0 per cent PSI and 1.0 per cent adjustment are being imposed on imported POY, that is, in total of 39 per cent taxes are there on imported POY. As a result, production cost of DTY consuming imported POY differs hugely compared to the production cost of DTY consuming imported chips.
Production cost of DTY from imported chips is very less than that from imported POY. The producers of DTY from imported POY are selling polyester yarn (DTY) incurring huge losses just to exist in the market. These producers cannot stop production considering their personal investment as well as the investment of banks. When they stop operation of factories, the overhead expenditure and bank interest become a huge burden.
In spite of that, many export oriented textile industry also use DTY. In some cases duty-free imported DTY in the name of export are being sold illegally in the local market. News appeared in the daily papers a few months back that the law and order enforcing agency captured two covered vans which where carrying DTY imported for an export-oriented industrial unit of Savar EPZ.
A proper solution of the above mentioned problem is needed for the benefit of the economy. It is to be handled with proper economic policies.The government may impose equal rate of customs, VAT etc. Even equal rate of customs, VAT etc. should be imposed so that the aggregate taxes will be less in case of chips comparing to POY. The international market price of chips is always less than that of POY. For an example, at present per kg. C&F, Chittagong price of chip is US$ 1.10 and that of POY is US$ 1.30. As the price of chips is less, in calculation aggregate tax is also less. In both cases, if total taxes are 39 per cent, taxes on one kg chips will be US$ 0.45. On the other hand, total taxes on one kg. POY will be US$ 0.51. That is, in case of chips total taxes will be 8 cents less.
Alternatively, the current total 39 per cent taxes on POY may be reduced to 12 per cent. Those who produces POY from imported chips and then produce DTY should have some comparative advantage as, to produce POY from chips, the sponsors have invested their money as well as bank's finance as loans. When the difference of production cost of polyester yarn from imported chips and polyester yarn from imported POY would be reduced, the survival for both the industries will be ensured. Revenue income will drop insignificantly when taxes will be imposed reducing the rate on POY. As mainly the poor people use polyester yarn (DTY) the matter deserves consideration of the government. On the other hand, illegal sale in local market of duty free imported polyester yarn in the name of export will stop.
As the price of imported polyester yarn will not be less than locally produced yarn, the total taxes on chips and POY need to be equalised for the shake of survival of both POY producers as well as DTY producers in the country. It may be mentioned here that there is no customs duty, VAT etc. on import cotton. The government needs to protect its industrial units providing fiscal support. The government should equalise and rationalise the duty structure for POY and PET chips for the shake of both industrial units, which at the end produce the same polyester yarn (DTY).
The writer is Senior Manager,
R. M. Synthetic Mills Ltd.