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China's textiles & garment sector seeks tax reform
Jul '11
China's textiles and garment sector has sought nation-wide structural tax reform to counter the growing competition from Bangladesh.

Industry experts suggest a reduction in drawback duty on fabrics, and increase in drawback duty on garments.

The sudden rise of Bangladesh garment industry is posing a stiff competition to the traditional labour-intensive Chinese garment industry, which is under pressure due to shortage of workers, increasing costs of raw materials, international trade restrictions, and even the appreciating Yuan.

Bangladesh, on the other hand, has a large number of working population, its people are well-versed in English, and the minimum wage set by the Government of Bangladesh for the textiles and garment industry is very low at 1662 taka, i.e. about 180 Yuan.

The Bangladesh Government is also attracting foreign investment by giving tax incentives. While the normal income tax rate in the country is very high at 37.5 percent, foreign investors are exempt from it for at least the first five years.

If the investment is made in garment units inside the export processing zones (EPZs), then the foreign investor can enjoy income tax waiver for ten years, while those investing outside the EPZs can have 5-7 years waiver.

The relaxation in EU Rules of Origin (RoO) since beginning of 2011 has also worked in Bangladesh's favour as garments made from imported fabrics also enjoy duty-free access to the EU market.

In such a situation, experts foresee China losing its competitive advantage to Bangladesh in the next 3-5 years, unless structural tax reforms are implemented.

At present, textiles and garments are allowed a 16 percent concession in China. If the drawback is increased on garments and reduced on fabrics, it will decrease the cost of garments while increasing the cost of fabrics, experts say.

This step would be enough to contain competition form Bangladeshi garment industry. Since, Bangladesh heavily relies on import of Chinese fabrics for its garment manufacturing, the increase in the cost of Chinese fabrics would make their garments costlier, they add.

Fibre2fashion News Desk - China

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