Businessmen in the export-oriented garment accessories sector are fearing a rise in production costs due to implementation of the proposed VAT law from July despite assurances to the contrary from the revenue authority. At present, all export-oriented sectors are out of the purview of value-added tax. The new law prescribes a uniform 15 per cent VAT for most goods and services.

The VAT officials at the field levels have confirmed that if any trader buys garment accessories from the local market and sells those to the export-oriented garment factories, VAT will have to be paid at the government-fixed rate.

Zakir Hossain, deputy project director of the National Board of Revenue's VAT Online Project, says that if any accessories trader purchases goods from the local market by opening letters of credit they will not have to pay the VAT. The traders will have to pay the VAT if the goods are purchased from the local markets in cash, but the sum can be reclaimed at the end of the month in the form of rebate.

The new VAT is not well understood by the majority of the small accessories makers and traders. Md Abdul Kader Khan, president of the Bangladesh Garment Accessories and Packaging Manufacturers and Exporters Association pointed out saying that at present, garment exporters are overburdened with the 0.70 per cent tax at source, assumed If the VAT is imposed the sector will be abnormally affected.

According to Khan the garment accessories makers have invested more than Tk 30,000 crore. The number of accessories making factories is nearly 1,600 also the share of accessories sector is 20 percent in the total garment export.

The local manufacturers are also supplying accessories worth nearly $1 billion in a year to some other rising export-oriented sectors like ceramics, frozen fish, flowers, crockery and pharmaceuticals. In the early days of garment business in the 1980s, Bangladesh was dependent on accessories imports from China, Hong Kong, Taiwan, Turkey and India.