Bangladesh’s export-oriented knitwear industry is bracing for a sharp cost shock after the Commerce Ministry moved to withdraw the bonded warehouse facility on imports of 10-30 count yarn, a decision industry leaders say could raise the effective tax burden on key raw materials by up to 40 per cent and undermine the country’s export competitiveness.
In a letter sent to the National Board of Revenue on January 12, the Commerce Ministry formally requested the withdrawal of bonded warehouse privileges for imports of 10–30 count yarn. If implemented, the order would primarily affect yarn imported under HS codes 5205 and 5206, which are widely used by knitwear and garment manufacturers across the country.
Exporters say the move comes at a time when the sector is already under strain from slowing global demand, rising costs and mounting trade uncertainties, and could trigger a fresh wave of order losses.
Steep jump in taxes
At present, export-oriented manufacturers import yarn under the bonded warehouse system, allowing them to defer or avoid upfront duties as long as the raw materials are used for exports. Once the facility is withdrawn, importers will have to pay full duties and taxes in advance, sharply increasing working capital pressure.
For cotton yarn under HS code 5205, importers would be required to pay a 10 per cent customs duty, 15 per cent VAT, 5 per cent advance income tax and 7.5 per cent advance tax. Combined, the total tax incidence would reach 39.75 per cent.
For yarn under HS code 5206 and other related categories, the applicable rates would include 5 per cent customs duty, 15 per cent VAT, 5 per cent advance income tax and 7.5 per cent advance tax, taking the total burden to around 33.63 per cent.
Industry insiders say such a sudden jump in costs will inevitably be passed down the supply chain, raising yarn prices in the local market and inflating garment production costs.
Pressure on the supply chain
Analysts warn that without bonded facilities, importers will face liquidity stress due to the need to pay duties upfront, slowing down yarn imports and disrupting the textile supply chain. This could lead to shortages, delivery delays and higher input prices for garment factories.
The concern is particularly acute for knitwear manufacturers, who rely heavily on imported yarn despite Bangladesh’s strong spinning capacity. Any disruption in raw material supply, they say, could quickly translate into missed shipment deadlines and penalties from buyers.
Exporters fear loss of orders
The timing of the proposed withdrawal has alarmed exporters, as Bangladesh is already seeing weak export momentum in the current fiscal year. Export earnings recorded negative growth in the first half, driven by global inflation, higher production costs, geopolitical uncertainty and the impact of counter-tariffs under the Trump administration, alongside domestic political instability.
Mohammad Hatem, president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said the decision could deepen the ongoing downturn. “The withdrawal of the bonded facility for 10–30 count yarn will further worsen the crisis in the ready-made garment sector,” he said. “Many exporters will struggle to survive in the international market.”
BKMEA executive president Fazle Shamim Ehsan described the move as a serious threat to the national economy. “The export-oriented garment sector contributes more than 80 per cent of Bangladesh’s total export earnings and supports millions of jobs, directly and indirectly,” he said. “Any policy that weakens this sector puts export earnings and foreign exchange inflows at risk.”
He added that bonded warehouse facilities for raw material imports are allowed under World Trade Organization rules and have long been a cornerstone of Bangladesh’s global competitiveness. “If this facility is withdrawn, the export-oriented industry will be severely affected,” he warned.
Competitiveness at stake
Exporters argue that higher production costs will make it difficult for Bangladesh to compete in a buyer-driven global market where prices are tightly negotiated. “Buyers will not absorb these extra costs,” said Shamim. “If raw material prices rise and supply becomes uncertain, international brands will shift orders to competing countries such as India, Vietnam and Cambodia.”
Such a shift, industry leaders fear, could result in a significant decline in export earnings and foreign exchange reserves at a time when the economy can least afford it.
Knitwear’s growing role
The stakes are high because knitwear has emerged as the single largest driver of Bangladesh’s garment exports. According to the Export Promotion Bureau, total garment exports reached $38.82 billion in 2025, up slightly from $38.48 billion in 2024.
Of this, knitwear exports accounted for $20.80 billion, or about 53.6 per cent of total garment exports. Strong backward linkages, relatively lower production costs and steady demand in major markets have kept the knitwear segment ahead.
Woven garments exports stood at $18.01 billion, representing 46.4 per cent of total exports. Although slightly behind knitwear, the woven sector remains a critical pillar of export earnings due to its higher-value products and broader product range.
Industry leaders caution that disrupting yarn imports could hit both segments, but the immediate impact would be felt most sharply in knitwear, where margins are thinner and dependence on timely yarn supply is higher.
As discussions between the Commerce Ministry and the NBR continue, exporters are urging policymakers to reconsider the move, warning that short-term revenue gains from higher taxes could come at the cost of long-term export growth and competitiveness.