Bangladesh to Phase Out Export Subsidies, Unveils Transitional Tax Relief Plans

Recently, as Bangladesh prepares to graduate from Least Developed Country (LDC) status-a move that will result in the loss of associated international trade preferences-the government is implementing a series of new measures to ensure the stable development of its export-oriented sectors.

According to the Ministry of Finance, World Trade Organization (WTO) rules prohibit the provision of direct cash subsidies to exports after a country leaves the LDC category. In response, Bangladesh has begun gradually reducing cash incentives for export products. Currently, several non-garment sectors benefit from such subsidies at varying rates, including leather and leather goods, pharmaceuticals, processed agricultural products, light industrial goods, jute and jute products, and IT/ITES. These forms of direct support must be phased out post-graduation.

To manage this transition, the Office of the Chief Advisor has developed and submitted a transitional support program focused on export diversification and enhancing competitiveness. Key measures include maintaining limited cash incentives for six priority sectors during the transition phase to avoid abrupt disruptions for exporters.

The program also proposes alternative support mechanisms, such as tax relief for exporters in priority industries, reduction of import duties on essential raw materials and machinery, and policy incentives facilitated through specialized industrial parks and clusters. This approach signals a shift from direct cash subsidies toward a more sustainable incentive system, designed to help exporters maintain international competitiveness while complying with WTO regulations.

Simultaneously, the Bangladesh Investment and Development Authority is drafting a new foreign direct investment (FDI) incentive policy. The draft emphasizes non-cash incentives and sector-specific tax benefits within special economic zones, aiming to keep exports resilient throughout the LDC graduation process.