NBR Scraps 2% AIT On Imports Of Cotton & MMFs

Bangladesh’s National Board of Revenue (NBR) has scrapped the recently imposed 2% advance income tax (AIT) on imports of cotton and man-made fibres (MMFs) used in the country’s garment and textile sector. The exemption, effective immediately, applies exclusively to industrial Import Registration Certificate (IRC) holders, as per a gazette notification issued on 17 July. Commercial importers remain excluded from the benefit.

The 2% AIT was introduced in the current fiscal budget effective 1 July and applied to more than 150 imported raw materials, including cotton and MMFs. The NBR had projected generating an additional Tk900 crore in revenue from this measure during the fiscal year.

However, the decision sparked strong opposition from industry stakeholders, particularly textile mill owners, who argued the tax would severely impact production costs and undermine Bangladesh’s competitiveness in global apparel exports. The Bangladesh Textile Mills Association (BTMA) warned that the tax could lead to widespread mill closures.

Bangladesh imports nearly 99% of its cotton requirements, with 2024 imports reaching 83.21 lakh bales, according to BTMA. Key sourcing countries include African nations (43%), India, CIS countries, Australia and the United States.

Over 7% of last year’s cotton imports came from the US alone. The exemption also covers raw materials of MMFs, such as polyester, nylon, acrylic and synthetics primarily imported from China.

BTMA Vice President and Managing Director of NZ Textile Mills Ltd, Saleudh Zaman Khan, welcomed the NBR’s decision, noting the immense burden the tax would have placed on textile units. “With 2% AIT, the effective tax rate for my factory would have reached 64%, though officially it’s 27%,” he said. Khan highlighted that Bangladesh imports nearly US$ 4 billion worth of cotton and MMFs annually, and that such taxation would have rendered the industry unviable.

NBR officials had defended the AIT as an adjustable tax, claiming that firms could reconcile the amount against annual profits. NBR Chairman Abdur Rahman Khan told The Business Standard that while the tax is collected upfront, it is refundable or adjustable for profit-making entities. “If a firm earns 10% profit and pays 27% tax, we’re only taking Tk2 in advance on every Tk100 earned,” he explained.

Industry leaders countered that such profit margins are increasingly unrealistic given prevailing economic conditions. They also raised concerns about the complexity of tax adjustments and delays in refunds. BTMA President Showkat Aziz Russell criticized the policy, stating, “The NBR says it can be adjusted later, but the process is extremely complex. Instead of simplifying business, this complicates it.”

Russell also pointed out a disparity in tax treatment, noting that yarn imports remain untaxed, whereas cotton used to produce yarn domestically was subjected to AIT, making local spinners less competitive.

According to NBR sources, the decision to roll back the tax followed consultations with representatives from the International Monetary Fund (IMF), underlining the broader economic and policy implications.