Bike makers seek duty benefits

Motorcycle manufacturers have demanded duty benefits on component and raw material imports in order to reduce the cost of production and develop the local two-wheeler industry. Motorcycle Manufacturers and Exporters Association of Bangladesh (MMEAB) and Bangladesh Honda Private Ltd (BHL) separately placed this demand on Tuesday to the National Board of Revenue (NBR) at the budget proposal for next fiscal, held in the first week of March.

In his budget proposal, Himihiko Katsuki, managing director and chief executive officer of BHL, said there is no doubt that the local motorcycle market has great potential to grow through support from the country's large population and steady economic growth.

"We have already started locally manufacturing frames and swing arms in line with the government's localisation policy," Katsuki said.

Besides, as a part of BHL's investment, the company has started a full phase engine assembly line.

"At our plant, we maintain the highest global standards set by Honda to accelerate the industrialisation of Bangladesh and to make motorcycles more affordable, he added.

From the research and development aspect, BHL has carefully studied the local customers to develop the Dream 110, Honda's first motorcycle designed solely for Bangladesh at an affordable price of Tk 89,900.

In this manner, Honda is committed to providing the highest quality products with reasonable prices to contribute to society by spreading the joy and freedom of mobility.

The government decided to promote motorcycle production to a prioritised industry considering its socio-economic importance as well as its significance as an easy and cost-effective mode of transportation.

BHL currently imports Completely-Knocked Down (CKD) kits for engine components, which are segregated into more than 200 parts, 32 of which are essential but must be imported separately.

"So we are not getting the required duty benefits," BHL's proposal said.

Under these circumstances, the company is paying comparatively higher duties even though it locally manufactures certain components, such as the chassis and swing arm, as directed by an NBR circular.

This makes BHL's finished product less competitive due to higher production costs.

"For this reason we are facing extra challenges in localising the production of various parts, which are normally manufactured by the original engine maker.

"Besides, we cannot make these parts, such as the fuel tank and various plastic accessories, since our resources are tied up in frame/chassis and swing arm manufacturing," it added.

To free up some of its own resources, BHL signed a memorandum of understanding with Runner Automobiles Limited (RAL) on February 11 for the latter to produce certain components.

In the MMEAB's proposal, the association said the government did not increase the customs duty on motorcycle components in its budget for fiscal 2020-21.

However, the NBR did withdraw the exemption of value added tax on local manufacturing.

MMEAB President Hafijur Rahman Khan said this decision is detrimental for the motorcycle industry as it would hinder the growth of local vendors.

At present, over 30 lakh motorcycles are plying the streets in Bangladesh while the annual demand has reached around 5 lakh units, according to data from the Bangladesh Road Transport Authority.

The 2018 policy was formulated by the government to attract foreign investment in this industry.

The aim was to increase the sector's contribution to gross domestic product from the existing 0.5 per cent to 2.5 per cent by 2027 by expanding the industry's capacity.

The industry is currently dominated by the assembly of imported components.

The government set a target to enable local manufacturers to produce around 5 lakh motorcycles annually by 2021 and 10 lakh by 2027.

Apart from that, the policy also aimed to increase employment opportunities in the sector to 15 lakh from the existing five lakh.

"This light engineering sector with its supply of original spare parts is a very important enabler for the local motorcycle industry," Khan said.

Once the policy was formulated, Honda, Bajaj, Yamaha, Hero and TVS started manufacturing motorcycles in Bangladesh, bringing together foreign and local investors.

Local manufacturers like Runner, New Grameen and Roadmaster are also trying to improve their technology and go for exports to Nepal, Bhutan and other countries.

According to the MMEAB president, investment in the sector currently stands at around Tk 8,000 crore. 

Policy support from the government helped significantly to cut back the imports of motorcycle components, saving foreign currency and enriching domestic reserves in the process.

But of course, locally assembled motorcycles now dominate the market, he said.

During the previous fiscal, motorcycle makers urged the government to continue exempting VAT on sales of locally-made parts until 2027 to keep prices low.

However, the government did not entertain their request.

Bangladesh needs to import components worth Tk 2,100 crore annually in order to cater to the demand for spare parts and components.

If the government gives policy support to motorcycle makers, they would be able to develop local vendors that supply these components by creating original equipment manufacturers.

Besides, employment in the sector would increase while a number of new entrepreneurs would be introduced as well, Khan added.