Rampant smuggling, high taxes, huge loss of revenue for Bangladesh

The pandemic has exacerbated the problem

Over the past few months, many in the business community have called for revising the tax system in Bangladesh as high taxes are one of the biggest obstacles to the ease of doing business here.

The pandemic has exacerbated the problem as Apex Footwear chief executive Syed Nasim Manzur recently went viral after his remark at an event about quitting the company altogether if the tax system is not not reformed.

“The local tax system is not favorable to business. For this reason, business should be stopped. Those of us doing business in Bangladesh, we want to leave it from tomorrow,” he said at the time. of the webinar.

It not only affects the export of leather products, but also the importers of goods.

Take, for example, the Customs Act of 1969, where cosmetics and personal care products, such as lotions, shampoos and perfumes, have been subject to increasing tax incidence over the years – considered products of luxury.

Skin and baby care products such as powders, lotions, oils, soap and shampoo, etc. which are mainly imported for local consumers – identified by HS codes 33.03 to 33.07 – are subject to high tariffs; with the highest total tax incidence (TTI) of 150% and the lowest being 89.2%.

The total tax incidence for specific products is the sum of the applicable charges including customs duties (CD), surtax duties (SD), value added tax (VAT), advanced income tax ( AIT), regulatory fees (RD) and advance commercial VAT (VTT).

The shampoos have an ITR of 153.49%; Skin care / makeup / powder 130.19%; Perfumes and toiletries 106.9% and soaps 91.37%

Taxation makes goods more expensive, which leads to smuggling and counterfeiting of products. Which in turn becomes a loss-making business for legal importers and also a loss of tax revenue for the government.

“We have a minimum monthly revenue loss of Tk2 crore, annually it could be Tk24 crore,” said Zakir Hossain, branch manager of Procter & Gamble (P&G) in Bangladesh. “Due to illegal imports, 15-20% of their products remain unsold.”

There are so many illegal international branded products on the market that FMCG brand distributors and wholesalers have also claimed that parent companies are aware of the illegal channels through which their products are entering the local market.

Dhaka Tribune has contacted Marico Bangladesh and Reckitt Benckiser about this, but they declined to comment.

“The government policy is rightly to protect the domestic industry, but there should be a justification for a good balance between domestic and imported products and the best way to achieve this is to modernize the tax system with reforms. ”, Estimates Fahmida Khatun, executive director of the Center for political dialogue (CDP).

The market will always dictate the price

Since contraband goods are cheaper, consumers naturally prefer to pay less than more for legally imported goods.

According to the authorized distributor of an MNC brand, the legally imported baby care product which costs Tk 265 on the market, is sold at Tk190-200 in the Chawk Bazar market, causing immense losses to legal importers. Another 100ml product from the same brand which costs Tk132 is sold at Tk100-110.

According to the sellers, if they buy from authorized dealers, they cannot make a profit, so they go to Chawk Bazar where they can get all the branded goods at the cheapest price.

Speaking to a salesperson at a store in Chawk Bazar who made sure he got the cheapest price for baby products on the market, he said: “The problem is not whether these go through other illegal or legal channels. What matters is that we can give you the cheapest price and people buy the real products at the cheapest price no matter to customers if it is illegal. ”

While visiting some markets, a Dhaka Tribune correspondent found many skin care and baby care products such as powders, lotions, oils, soap and shampoo being sold openly without the stickers of the importers nor the Bangladesh Standards and Testing Institution (BSTI) seal of approval guarantees consumer rights in terms of price and safety to sell at a lower price than authorized resellers or importers.

These products are often smuggled across the border through illegal channels and sold to Chawk Bazar.

At his request, the owner of a store selling illegally imported products said, “These are not legally imported products. These come from the black market. It is risky to openly sell black market products. Besides, the luggage products are delivered without any VAT or tax, so we can sell them at the lowest price that legally imported products can not be sold at this price.

Essentially, cosmetics and toiletries from brands like Procter & Gamble (P&G), Unilever, Nestle, Johnson & Johnson (J&J), Marico, Reckitt Benckiser (RB) that are available in the market, are basically of three qualities – original products which are imported through authorized channels; “Luggage” goods or original products transported through illicit and counterfeit circuits.

According to Rezaul Haque, deputy director (metrology) of BSTI, these unauthorized and counterfeit imported products may contain chemicals that pose a serious threat to the health and safety of consumers.

Local sellers are able to offer such reduced prices since the products pass through parallel channels which are illicit without payment of customs duties or import tax.

Bangladeshis spent $ 2.5 billion on cosmetics in 2016 alone, according to the State of the World Islamic Economy 2016-17 report, being the sixth largest buyer of cosmetics in the Muslim world, the report said.

According to a study conducted by Allied Market Research, the size of the Bangladesh skin care products market was valued at $ 1.23 billion in 2020 and is expected to bring in $ 2.12 billion by 2027, registering a CAGR 8.1% from 2021 to 2027.

The chains

Unauthorized products are introduced by international travelers and airline crew members in quantities within the duty-free limit, or sometimes in excess of these amounts, but without any duty; Travelers bring in branded cosmetics from different countries saying they are for personal use or as gifts and later sell them to retailers. Airline crews benefit from the fact that the roughly 20 kilograms of baggage allowed to them is rarely, if ever, screened.

After speaking to several importers, dealers and buyers, the DT correspondent learned that these products are arriving directly to Indian Potti, Churi Potti-Jeshore Sadar via the Jashore-Benapole border, Satkhira Sadar and Vomra Bazar via the Vomra, Boro border. Bazaar to Khulna Sadar through Benapole and Vomra Border, Feni Bazar -Sadar Road through Feni Border Bazar, Bogura Sadar to NewMarket through Hili Border.

These illegal products are mainly found in the wholesale markets of Chawk Bazar, Dhaka including Moulvibazar Tower, Ikramulla Plaza and Khan Market, Rajgonj Bazar in Comilla, Indian Potti / Churi Potti in Jessore, Borobazar in Khulna, Vomra Bazar in Satkhira and New Marché in BograSadar which are the main wholesale outlets for illegal products.

The current state of control measures

BSTI Deputy Director Rezaul Haque on how they are controlling the situation said: “We have taken action against unauthorized and counterfeit products which have reduced illegal imports. Police, RAB and the National Directorate for the Protection of Consumer Rights (DNCRP) have continuously launched raids based on the allegations they found.

We destroyed Tk20 crore products in a year and a half. But with the lockdown underway, our operations have come to a halt. When the situation returns to normal, we will start our operation again. “

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