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The Ready-Made Garments (RMG) sector has long been a pillar of growth for Bangladesh’s export economy, contributing approximately 84% of the country’s total export earnings. As the national budget for the Fiscal Year (FY) 2025–26 takes shape, a mix of optimistic considerations and emerging challenges has come to the forefront, shaping fiscal decisions that impact the industry.
The RMG sector of Bangladesh has enjoyed reduced corporate tax benefits since FY 2017–18.[i] While most companies in Bangladesh pay a 27.5% corporate tax rate, RMG factories pay only 12%. The rate is even more favorable at 10%[ii] for green-certified factories.
Recently, discussions emerged around eliminating this benefit by introducing a uniform corporate tax rate—an idea strongly opposed by RMG industry stakeholders. Ultimately, the government decided to retain the existing corporate tax rate of 12% (and 10% for green-certified factories) for the current fiscal year.
This decision provides much-needed stability for RMG businesses. It enables them to maintain current pricing structures, avoid aggressive cost-cutting, and focus on long-term growth rather than short-term survival. More importantly, it sends a strong signal that the government remains committed to the financial sustainability of Bangladesh’s most critical export industry.
Historically, the power and energy sector in Bangladesh has been heavily subsidized. Although it remains a priority in budget allocations, the allocated amount has been reduced to BDT 225.20 billion in the current fiscal year, down from BDT 303.17 billion in the previous year.[i]
The RMG and textile sector is highly dependent on uninterrupted power, particularly the textile segment, which is energy-intensive due to continuous machine operations, dyeing, washing, and finishing processes. A key positive takeaway from the FY2026 budget is the government’s increased spending on energy security, including[ii], aimed at ensuring a more stable and reliable power supply.
Additionally, the government has decided not to raise energy tariffs in the current fiscal year, acknowledging prevailing inflationary pressures. This decision offers much-needed cost stability for industry owners, enabling factories to maintain predictable operational expenses—critical for preserving competitiveness in the global market. Together, these measures reflect a government focus on supporting industrial productivity through energy reliability and cost containment.
The RMG sector has been striving to diversify its product basket to remain competitive in the global apparel market. However, recent changes in the FY 2025–26 budget have affected the import costs of raw materials, posing new challenges for the sector. Without timely and effective measures, these changes could disrupt progress toward diversification.
Table 1: Recent Changes Made in the Tax Amount at the Production Stage of the Textile and RMG Sector[iii]
Similarly, the 1.0% increase in customs duty imposed on Polyester Staple Fibre, one type of man-made fibre (MMF), is expected to have an adverse impact on the production costs of MMF-based garment exports.
On the other hand, there has been a reduction in the supplementary duty (SD) on various textile materials. For instance, the decrease in SD on impregnated, coated, or laminated textile fabrics from 20.0% to 10.0% will help lower import costs and benefit the textile and garment producers.[iv]
Considering the recent changes in import costs on raw materials for the textile and RMG sector, it is high time for industry leaders to prioritize investment in developing a robust backward linkage to avoid potential supply chain disruptions. The sector has long benefited from various subsidies and trade advantages compared to non-RMG export industries, making it even more imperative to reinforce its foundation. A stronger backward linkage will not only help mitigate the impact of rising production costs but also reduce lead times in sourcing raw materials, limit price volatility, and bring greater stability and predictability to production planning.
Shoumik Shahriar, Project Manager and Senior Business Consultant, Sadia Karim, and Sakina Binte Belayet, Business Analysts, at LightCastle Partners have co-authored the summary.
[i] Power, energy allocation slashed for second consecutive year
[ii] Power division allocation cut by 30%, energy gets 100% boost
[iii] Centre for Policy Dialogue (CPD) (2025): An Analysis of the National Budget for FY2025-26
[iv] UCB Stock Brokerage Ltd. (2025, June 3). Bangladesh budget review FY26: Focus on revenue generation and fiscal discipline
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