RMG exporters to get 5% incentive for using local yarn

The government has raised the cash incentive for export-oriented garment manufacturers using locally produced yarn or fabric to 5 percent, up from 1.5 percent.

The move aims to revive the country’s struggling textile spinning industry and reduce its reliance on imported raw materials.

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The enhanced incentive will be available only to exporters that source their yarn or fabric from domestic producers, according to a Bangladesh Bank circular issued yesterday following a directive from the finance ministry.

The revised incentive will apply to export shipments made between July 1, 2026, and June 30, 2027, it states. To qualify, exporters must submit documentary proof that they procured yarn or fabric locally before claiming the incentive, it adds.

The decision comes after textile mill owners repeatedly urged the government to restore the incentive, arguing that the earlier reduction had made imported yarn significantly cheaper than locally produced alternatives.

Until January 2024, garment exporters received a 4 percent cash incentive for using domestic yarn. As part of Bangladesh’s preparations for graduating from the least developed country (LDC) category, the incentive was first cut to 3 percent and later reduced to 1.5 percent. Exporters also pay a 5 percent tax on the incentive.

Meanwhile, overall yarn import volumes have risen steadily, hurting the local cotton industry.

Industry leaders said the lower incentive widened the price gap between imported and locally produced yarn, triggering a surge in imports, particularly from India.

“We welcome this decision.

It will provide some relief to the local industry and benefit domestic manufacturers,” said a director of the Bangladesh Textile Mills Association (BTMA), requesting anonymity.

“Imported goods brought in under the bonded warehouse facility are often falsely declared and then diverted to the local market. Because those products carry a much lower cost, our local industry loses out as buyers opt for the cheaper imports,” he said.

“Another major problem is that imported yarn frequently enters without the yarn count being declared. There is no indication whether it is 10-count, 80-count, or any other specification. This should not be allowed,” the BTMA director added.

“Our spinning mills are already under pressure from rising gas and electricity prices and higher wages. At the same time, Indian spinning mills receive various forms of government support that we do not, making our production costs significantly higher,” he said.