The government might cut the source tax on local cotton purchases by half, from 1 per cent to 0.5 per cent, in a move expected to reduce input cost pressures on Bangladesh's readymade garment industry, the world's second largest apparel exporter.
Finance minister Amir Khosru Mahmud Chowdhury is scheduled to place the national budget for fiscal year 2026–27 before the Jatiya Sangsad on June 11.
The proposed measure would extend the 0.5 per cent source tax rate to purchases of a wide basket of agricultural and industrial raw materials made through local letters of credit, covering items including raw hides, organic fertiliser and pesticides, poultry feed, soybean meal, molasses, oilcake, and handicraft products, among others, according to finance ministry officials familiar with budget preparations.
Bangladesh is the world’s largest importer of raw cotton.
According to data published by the National Board of Revenue, the country imported about 7.82 million bales of cotton.
Welcoming the rate cut, Bangladesh Textile Mills Association director Khorshed Alam said the measure was a step in the right direction, but urged the government to go further.
‘The source tax on local cotton should be removed entirely,’ he told New Age, saying that more importantly, the government should provide sufficient incentives directly to cotton growers to encourage them to cultivate more cotton.
He said yields could be dramatically improved through better agricultural inputs.
Current production stands at 10 to 12 maunds per bigha, he noted, adding that adoption of hybrid or high-yielding variety seeds alongside appropriate use of chemicals could more than double that figure.
‘If we could do that, national production could rise to four to five lakh bales, which would mean significant savings in foreign currency,’ he added.
At present, Bangladesh produces approximately 153,000-200,000 bales of cotton domestically on around 45,000 hectares of land, accounting for less than 2 per cent of its total consumption.
The country is therefore almost entirely dependent on imports to feed its spinning mills, which in turn supply yarn to the garment factories that earned Bangladesh $39.35 billion in RMG export receipts in fiscal year 2024–25.
The government might reduce the withholding tax to 0.5 per cent on amounts paid or credited against local LCs or other financing arrangements opened for the purchase of staple commodities.
The list covers rice, wheat, potatoes, fish, meat, pulses, edible oil, sugar, jute, raw tea leaves, and spices, including pepper, cardamom, cinnamon, and cloves.
