Garment industry is charging 15% VAT against port service on shipment goods

For the past three months, the Chittagong Port Authority has been collecting VAT at the rate of 15 percent against various charges on the import and export of garment industry’s raw materials. However, according to the Statutory Regulatory Order (SRO), export-oriented apparel industries enjoy VAT exemption against port services for shipment of goods.

In two separate orders of the SRO in 2019 and 2021, the National Board of Revenue (NBR) granted 100% VAT exemption on port services on imported and locally manufactured goods for fully export-oriented industries and export processing zones.

Before that, the National Board of Revenue in an order on March 20, 2018 had directed the Chittagong Port Authority to stop collection of 15 percent VAT against the services provided by garment industry establishments that are 100 percent exporters.

However, the Finance Act, 2022 revoked the ‘zero’ rate of VAT on international transport services and supply services related to loading and unloading of goods by ship. It was implemented from July 1 last year.

On July 4, 2022, Chittagong Customs Excise and VAT Department sent a letter to the Chairman of Chittagong Port Authority for collection of VAT in two service sectors. Pursuant to the letter, the Chittagong Port Authority has been collecting 15 percent VAT from the export-oriented garment industries since September 27.

Chittagong Port Authority has informed that in terms of Finance Act 2022, VAT is being collected in the case of shipment of manufactured garments as per the instructions of the VAT Department.

The addition of 15 percent VAT is being collected on container store rent, unstaffing charges and river dues charges at the port which costs over Tk 1,000 per TEU (twenty-foot equivalent unit) container, garment owners said.

Garment owners, however, say that levying VAT despite the government’s SRO facility is unreasonable. Moreover, there is no involvement of local importers-exporters with port service charges. This relates to local agents of international transport operators or shipping agents paying terminal handling charges.

An emergency meeting of senior leaders of BGMEA was held with NBR on October 1 to stop VAT collection. In addition, on October 4, Syed Nazrul Islam, the First Vice President of BGMEA, wrote a letter to Chittagong Customs, Excise and VAT Commissioner Syed Mushfiqur Rahman requesting to stop VAT collection.

The VAT Commissioner wrote a letter to the member of the National Board of Revenue (musak policy) on October 30 seeking guidance in this regard.

Syed Mushfiqur Rahman said, “According to the SRO, VAT is exempted on the shipment of garment industry, but this benefit has been canceled in the Finance Act. There is some ambiguity on the matter. The guidance of the National Board of Revenue has been sought in this regard. Hope to get instructions soon.”

Courtesy: Textile Today