Export-oriented garment products produced through subcontracting will now receive cash incentives that are equal to those made by primary manufacturers, according to the Bangladesh Bank.
As per a circular on Thursday, exporters will be eligible for cash incentives or export subsidies against readymade garments (RMG) and textile items produced and exported under subcontracting arrangements – subject to certain conditions.
Factories with active production units that export subcontracted apparel or textile products will receive incentives based on the net FOB value.
However, trading companies or entities not involved in actual production will not be eligible for the benefit, the circular added.
The circular further stated that exporters must comply with the *“Subcontracting Guidelines for the Readymade Garment Industry 2019” and the *“Warehouse-based Operational Procedures for Export-oriented Garment Industries 2024.”
Exporters said the move will help Bangladesh benefit from the “First Sales Framework” for exports to the United States.
Mohammad Hatem, president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), told the TIMES that around 10 percent of garment factories in Bangladesh operate through subcontracting.
“This special cash incentive will have a positive impact on the apparel sector,” he said.
Currently, knitwear factories receive 2.5 percent, woven factories 1 percent, and exporters to new markets receive 2.5 percent cash incentives on their net export value.
Under the new circular, if an exporting factory outsources production to another factory through a letter of credit (LC), the manufacturing factory will receive the cash incentive.
However, this benefit will not apply to cash-based subcontracting. Similarly, if a company uses its own affiliated factory to produce goods and exports under that factory’s name, the same incentive rate will apply.
Shovon Islam, managing director of Sparrow Group, said that the policy was long overdue.
“Traceability requirements are becoming stricter in the EU and US markets. Importers want to know exactly where their goods are made. With this system, we can specify production details to the buyers, ensuring greater transparency,” he added.
Bangladesh Bank spokesperson Arif Hossain Khan said that the decision is part of the government’s broader efforts to boost exports.
“This measure will facilitate exports to the US under the First Sales Framework,” he said.
Industry insiders view subcontracting as an integral part of Bangladesh’s RMG supply chain. They believe the new policy will enable small and medium-sized factories to work with large exporters and contribute more effectively to overall export earnings.
BGMEA Senior Vice-President Inamul Haq Khan said, “This policy will bring many small and medium-sized factories under the cash incentive scheme. If they maintain proper documentation, they will be eligible for the benefits.”
Under the First Sales Framework, importing countries such as the US impose tariffs based on the first sale price, which typically reduces the overall tariff burden. For instance, if a buyer places an order worth $100 with an exporter who subcontracts production at $92, the import duty in the US will be calculated on $92 instead of $100—saving duty on the $8 margin.
Bangladesh Bank also clarified that all other existing instructions in previously issued FE circulars regarding cash incentives for textile exports will remain unchanged.
