Bangladeshi businesses spend up to $8-$9 billion annually as freight charge and local oceangoing vessels can tap only 2 percent of the market at best for dearth of vessels.
The rest of the freight charge, generated from the country's ballooning exports and imports, goes to foreign vessel operators in the absence of investment in the sector, said industry operators.
Owners linked the high import cost of ships, high operating costs and prevalence of withholding tax as the main reasons for the lack of investment.
“Just with a conducive fiscal policy, you can enable 1 percent GDP growth in no time,” said SK Bashir Uddin, vice-chairman of Bangladesh Oceangoing Ship Owners Association (BOSOA), citing Bangladesh's rising imports, especially bulk cargo.
Bangladesh imported 66 million tonnes of cargo in fiscal 2016-17, up 14 percent from a year earlier, according to cargo handling statistics by the Chittagong Port Authority.
And yet, the local operators cannot capitalise on the growth in cargo for shortage of oceangoing ships.
Bangladesh had 85 oceangoing ships four-five years ago, but the number of vessels has now dropped to 35.
Between 2013 and 2015 owners sold off their vessels for declining freight rates and high operating costs, according to operators. And from fiscal 2014-15, the cost of vessels rose after the withdrawal of VAT exemption benefit for import and manufacture of ships.
“Continuing this business became an unviable proposition when the government withdrew the VAT waiver benefit,” said Bashir, also the managing director of Akij Group, which has a fleet of seven oceangoing ships.
Entrepreneurs have to pay advance income tax to purchase ships.
“There is no tax on any capital good in Bangladesh save for ships. For this reason, local entrepreneurs do not find this area worthy of investment.”
At present, 7-8 companies are active in business, according to Bashir.
“We should think how we can build the capacity of 2,000 ships, which will also create high-value employment.”
The government should provide cash incentive to entrepreneurs apart from providing duty benefit and VAT waiver to kick-start the sector, he said.
Up to $1 billion of investment will come in the sector in the next two years if the government offers cash incentive, Bashir said.
“Investment would grow exponentially,” he added. Last month, the National Board of Revenue took an initiative to waive VAT on import and manufacture of oceangoing ships, said a senior official of the NBR.
“A large amount of foreign currency goes to foreign shipping lines in the form of freight charge as local ships cannot transport the whole amount of goods,” he said.
Bashir, however, said only VAT waiver will not solve the problem. The advance income tax should also be withdrawn as it is a capital good, he added.
The demand for vessels has increased owing to soaring imports by the country resulting from the need for construction materials for infrastructure projects including Padma bridge, said Md Sakhawat Hossain, managing director of Western Marine Shipyard.
“I fully support the plan to waive VAT on import of vessels. But we will be affected if VAT waiver is offered to import small ships.”
The VAT should be exempt for import of ships of more than 15,000 deadweight tonnage (DWT).
Local shipbuilders have already made 8,000 DWT capacity vessels. So, VAT should not be withdrawn on import of ships of less than 15,000 DWT.
“If so, none will be affected,” he added.
Most of the vessels owned by local ship owners have minimum capacity of 40,000 DWT and maximum 80,000 DWT, Bashir said.
“We are going to America, Canada, Russia and Australia with national flag. We go to all the ports of the world. The expertise that Bangladesh has got should not go in vain.”