Bangladesh mulls tax break for recycled fibres

DHAKA – Bangladesh is considering removing value-added tax (VAT) on locally produced recycled fibre and its raw materials to support the industry and lessen its reliance on imported cotton. The Bangladesh Trade and Tariff Commission (BTTC) has suggested a complete VAT exemption at both production and service stages for domestic manufacturers.

Currently, traders are charged a 7.5 per cent VAT on the acquisition of locally-sourced clips or fibres, with an additional 15 per cent VAT applied at the point of sale. However, imported virgin cotton is not subjected to VAT under the bond facility.

The total production capacity of 23 companies specialising in textile waste recycling is approximately 0.22 million tonnes. The domestic generation of textile waste is around 0.57 million tonnes, which could potentially save US$1bn in virgin cotton import costs. Investment in the recycling sector is on the rise, mainly driven by increasing domestic demand.

In response to environmental concerns, the European Union will require that at least 30 per cent of the fibres used in garment products be recycled starting from 2025. The EU will also impose higher import taxes on garments that do not meet this standard.

Recycled fibre producers in Bangladesh are confident they can help reduce the country’s dependency on cotton imports by using recycled fibres in spinning and composite mills.

Currently, the government exempts VAT on the import and production of specific goods and services, including local cotton waste and jute. However, no such exemption exists at the manufacturing stage for recycled stock, resulting in double taxation and increased production costs for recycled fibre producers.