Budget Analysis: Tyre Industry Is Likely To Boom

A tax holiday has been proposed in the budget for fiscal year 2015-16 for tyre manufacturing Industry. The rational was simple enough: the country has to spend a huge volume of foreign exchanges every year to import tyre and if we can manufacture our own it will save foreign currency and at the same time will also create employment opportunities.

[su_note note_color="#f9fafd" text_color="#4e8df6" radius="16"]Editor’s Note: This is third installment of a ten parts series we are running on National Budget 2015-16. Thank you SmartKompare for teaming up with us and supporting the series. Visit SmartKompare and choose personal loans for you.[/su_note]

What Is Tax Holiday

Tax holiday refers to a government incentive programme that offers a tax reduction or elimination for a particular business [es] or sectors to help stimulate investments.

Background

Bangladesh, over the last few decades had gone through a rapid development in transport sector. Public and private cars are being added to the national traffic to a great number. Apart from the posh society middle class is also running after private cars. And there is a sharp development in public transport as well. We don’t make cars, everyone knows that. We don’t even make tyres. We import them in volumes.

Despite growing demand and huge potentials large local companies were yet to make heavy investments in tyre manufacturing industry due to its nature if capital intensive operations and lack of consistent power supply, as reported by insiders.

The country now spend BDT 1,000 crore annually to import around 15 lac pieces of tyres, mainly from China, India, Indonesia, Thailand and Japan to meet local demand.

There are few local companies who are manufacturing tyres at a limited scale. Currently Apex, Husain, Gazi Group, Meghna Group of Industries and Rupsha Tyre are manufacturing different types of tyre for light truck, minibus, microbus, motorcycle etc.

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According to a recent report, the tyre sales in Bangladesh will see a sharp rise in next five years due to the increase of automobile sales, improvement in public infrastructure, and growth in purchasing power. The report titled “Bangladesh Tyre Market Forecast and Opportunities 2020” said the tyre market will grow by over 9% CAGR (Compound Annual Growth Rate) until 2020 due to growth in automobile sales, ongoing improvements in public infrastructure, and growth-oriented government policies. It said automobile and tyre sales in Bangladesh are expected to grow with the rise of purchasing power of people as well as growing investments and joint ventures of foreign market players.

This tax holiday for the industry, if implemented, will have much greater impact. Two most visible impacts will be:

• Bangladesh’s tyre manufacturing industry is likely to see a boom in production as the proposed budgetary measures for upcoming fiscal will encourage investors to set up more manufacturing plants.
• We will see more local and international players in the sector. It will ultimately reduce our dependency on import and cost of products will be reduced as well. It will also create more employment opportunities.