Kathmandu, September 12:

The already troubled readymade garment export sector will soon face a new administrative hassle with the introduction of a new government provision, curtailing facilities on bonded warehouse and bank guarantees being enjoyed by the industry so far.

The Department of Customs (DoC) has recently introduced some new provisions on bonded warehouse and bank guarantee facilities being provided to garment industries.

According to the new provision, garment exporters now have to keep the bank guarantee at the respective customs offices through which they import raw materials and packaging items. In addition, they also have to submit sample items of raw materials while furnishing the bank guarantee.

Earlier, garment industries had the liberty of keeping the bank guarantee at the customs office at the Tribhuvan International Airport, irrespective of the points of import of raw materials.

The TIA customs office used to issue a letter for respective customs offices to release the bank guarantee, after finished goods were exported.

The new provision is expected to add to the burden of exporters, as they have to travel to each and every customs office through which they import raw materials in order to get the bank guarantee released.

Earlier in May this year, the Commission for the Investigation of Abuse of Authority (CIAA) had directed the government to amend the provisions of releasing bank guarantees at bonded warehouses, after a massive misuse of such a facility by a leading garment manufacturer was found.

A leading garment manufacturer termed the new provision as the government’s last attempt to ‘demolish’ the sector, which is already in doldrums. “The new provision comes at a time when are seeking incentives to manage the losses of plunging exports,” he said.

He also said that the new provision could result in delay in exports and increase the processing and overhead costs. “It will take seven to 10 days to release the bank guarantee against the earlier four to five hours,” he said.

Laxman Pokhrel, director general at DoC, confirmed that the department has already promulgated the new provision, as per the CIAA’s directive to the government.

“The new provision is expected to control possible evasion of tax and customs duty at bonded warehouses,” he said.

According to a government source, the Revenue Investigation Department is investigating different cases of duty evasion worth Rs 210 million under the bonded warehouse facility for the import of raw material provided to garment manufacturers.

It may be noted that the readymade industry is already in doldrums for the last couple of years with the crisis deepening further following the termination of quota regime under the Agreement on Textiles and Clothing (ATC), effective from January 2005.

Exports (in US dollar value term) had suffered a huge loss of 30 per cent in 2004 and 41 per cent in 2005. However, it slowed down with a marginal drop of six per cent in 2006. The situation is worsening further, as exports have already plummeted by 40 per cent.