The government is planning to offer a 10-year tax exemption for agricultural machinery manufacturing in order to encourage investment and support farmers’ growing appetite for machines to increase productivity and cut labour-shortage induced higher production costs.
Investors considering to sign up for making milk and dairy products and baby foods and establish facilities to process locally produced fruits and vegetables are also likely to get the same benefit, said finance ministry officials.
Firms will have to start commercial production between July 1, 2021 and June 30, 2030 to avail the tax incentive.
Entrepreneurs have welcomed the move.
“We are considering to offer the tax benefit to increase domestic manufacturing capacity and enable farmers and consumers to afford better,” said a ministry official.
Bangladesh has made strides in food production, including staple grain rice and vegetables, and production of fresh vegetable doubled to 20 lakh tonnes in the last two decades, making it almost self reliant on fresh vegetables.
The nation also cut its dependence on rice thanks to increasing yield, much of which can be attributed to increasing mechanisation that reduced turnaround time, helped timely land preparation and harvesting.
Today, farmers prepare farmland through power tillers or tractors, irrigate fields with pumps and use various other machinery, namely reapers and threshers for farming.
The market for agricultural machinery and their spare parts is also increasing because of the government’s generous support to farmers to help them buy certain machines.
The government pays for 70 per cent of the prices of a number of machinery bought by farmers in haor and coastal regions.
Growers in the rest of the country get 50 per cent of the price as subsidy to buy machinery under a Tk 3,020 crore project.
Prof Md Monjurul Alam of the Department of Farm Power and Machinery of Bangladesh Agricultural University (BAU), said most of the agricultural machinery used for cultivation were imported and any tax-break would be instrumental in encouraging manufacturing in the country.
Local agriculture machinery makers can manufacture pumps and threshers. Local firms also meet the requirement for nearly 60 per cent of spare parts, he said.
“We should encourage local manufacturing even under joint ventures for technology transfer. It is needed for our own capability to meet domestic requirement. There is also the prospect of export of small machinery as China has shifted to making bigger ones,” he said.
The National Board of Revenue (NBR), since fiscal 2016-17, has been offering one per cent tariff on import of certain spare parts to support domestic manufacturing of power tillers, power threshers, power reapers and power seeders based on fulfilment of certain conditions.
Alam said the benefit was effective and the latest plan would be a big booster for domestic production and increase the pace of mechanisation.
The agricultural machinery market is around Tk 14,000 crore, he said.
For locally grown vegetables and fruits, there has been progress in processing and entrepreneurs are exporting various processed foods abroad. There is scope for processing as a quite good amount of produce are lost in absence proper post harvest management, preservation and processing.
During the peak harvesting season of vegetables, for instance tomato, farmers still cry out for fair prices as supply outpaces demand.
In recent years, dairy farming has increased too while local processors are adding dairy products in their list of production and marketing.
Md Rakibur Rahman, senior vice president of Bangladesh Dairy Farmer Association (BDFA), said dairy products account for 10 to 15 per cent of people’s regular consumption.
“We see a lot of imported dairy products in the market. Tax benefit will encourage entrepreneurs,” he said.
Bangladesh imported Tk 2,900 crore-worth milk and dairy products in fiscal 2019-20, showed data from Bangladesh Bank.
Officials of the finance ministry said the NBR may tag conditions that businesses would need to use locally grown fruits and vegetables to claim the tax exemption benefit.
“It is fine if we are to source the main raw materials locally. But we use many ingredients and additives that are produced locally. In such case, we should be given scopes for import,” said Syed Md Shoaib Hasan, vice president of Bangladesh Agro-Processors Association (BAPA).
“We also lag behind in packaging. And because of shortcomings we cannot fully utilise our export potential. The government should provide duty benefit for packaging materials and reduce value added tax to promote exports,” he said.