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Tax policy weighs on light engineering

Sayeda Akter
The country’s promising light engineering sector has much developed from an informal cottage status, but with a lot of constraints, over the years.
“The sector is riddled with various problems, but the first and foremost problem is lack of finance and investment,” said Abdur Razzaque, president of Bangladesh Engineering Industry Owners' Association (BEIOA).
“If capital sourcing could be eased by easy bank loans, the sector's major obstacles would be removed," Razzaque said.
He said the government should take necessary measures to start disbursing the SME loan at flexible interest rates apart from the bank loan.
Nazeem H Sattar, assistant general manager of the SME Foundation, said the foundation did not get any fund from Bangladesh Bank.
“We hope we will get the fund by the end of this year and will start disbursing loans among the SMEs early next year,” Sattar said.
Once the foundation starts disbursing loans, it will escalate the growth of the light engineering sector, which has already been identified by the government as a thrust sector, hesaid.
Dr K Siddique-e-Rabbani, a physics professor of Dhaka University, who is an expert in the sector, differed with Razzaque saying another problem of the sector is the government's tax and VAT policy.
“The government's difficult tax policy and VAT charging raised the cost of production, making these products less competitive than the imported items," he said.
“Most of the essential components of the sector are imported, so entrepreneurs first have to pay taxes and then pay VAT for whatever they produce," Siddique-e-Rabbani said in an explanation of why the production costs go up. According to the existing government rules, if any entrepreneur does have a fixed investment worth Tk 15 lakh and annual turnover of Tk 24 lakh, he must pay VAT, the DU professor said.
He said the government should take steps to reduce tax and exempt this industry from VAT to help this promising sector to flourish.
"If the VAT system was friendly, this sector would grow further with our innovative and skilled manpower," he said adding that India exempted the industrial and agricultural sectors fromVAT.
Siddique-e-Rabbani said the limit for VAT-free turnover should be raised to Tk 1 crore from Tk 24 lakh and fixed investment toTk 50 lakh.
He said a taskforce on SMEs
PART-III
had presented a set of recommendations to the government, of which some vital ones relating to tax rationalisation and VAT waiver were excluded from the policy.
The DU professor also stressed the need for technology transfer to develop the light engineering sector of Bangladesh.
Lack of modern technology is one of the major problems the sector faces. Old-fashioned machineries were the key obstacles to ensuring high quality of the products, according to the industry people.
Javed Ahmed, a manufacturer of plastic baskets and CD and DVD covers, said his company supplies plastic baskets to
the local market. Javed conceded that the baskets he produced were not well finished like Thai baskets because he did not have modern machineries.
"The machineries we have are the first or second generation ones. But the world is now using 5th generation machineries," he added.
“We can hardly produce finished goods like China and Thailand. Ifwe get modem technology we will be able to compete even with China," he added.
According to the industry people, the sector is short of skilled and trained workers.
“As we do not have any institute for professional training, it takes us several years to groom a labour," said BEIOA chief Abdur Razzaque.
sayeda@thedailystar.net