Economists say increase to hurt many, Salehuddin sees no聽major impacts on inflation聽聽
The interim government has taken moves to increase value-added tax on 43 products and services such as clothes, restaurant bills, liquefied petroleum gas, air tickets, detergents and cigarette, which are feared to push up living costs further.
Finance adviser Salehuddin Ahmed, while talking to reporters after a meeting of the advisory council on government purchase at secretariat on Thursday, however, dismissed any major impacts on the current high inflation.
He made the comment a day after the advisory council in a meeting on Wednesday approved amendments to the Value Added Tax and Supplementary Duty Act that would see the increase of VAT on 43 goods and services.
Answering a question about the possible impact of the move, the finance adviser said that essential commodities like rice and pulse would not see any impact as duty on the items was already zero to give relief to the consumers.
Economists think otherwise as they said that many middle-class people would suffer because of the increase in VAT on LPG and supplementary duties on soap and detergents.
Former World Bank Dhaka office chief economist Zahid Hussain said that some items could easily be excluded from the lists since the high inflation has been prevailing in the country over the past two years.
The upward trend in inflation continued as it went up further to 11.38 per cent in November on the back of price hikes of food items in both rural and urban areas.
Food inflation was recorded at 14.63 per cent in the urban areas and 13.41 per cent in the rural areas during the month by the Bangladesh Bureau of Statistics.
Items whose prices may increase will not give major impacts on overall inflation, he said.
The latest move by the National Board of Revenue, struggling to generate more revenue, is likely to increase the VAT rate on restaurants to 15 per cent from 5 per cent and that of non-AC hotels to 15 per cent from 7.5 per cent.
A VAT rate 15 per cent may be added on production stage of tissue paper, biscuits, pickle and coils in addition to increase the VAT rate on the branded and non-branded clothes to 15 per cent from 7.5 per cent.
The VAT rate on LPG may increase to 7.5 per cent from 5 per cent at the trading stage.
The move is also linked to increasing supplementary duties ranging from Tk 200 to Tk 1,000 on air tickets on domestic and international routes.
Besides, supplementary duties are likely to slap on detergent, soap, paints and cigarettes.
The finance adviser said that extra tax on air tickets on the domestic route was marginal and could be borne by the growing number of air travellers.
As a reporter wanted to know why the interim government took such a move five months after assuming power, the finance adviser noted that the country鈥檚 revenue mobilisation was lower than Nepal and Bhutan.
Blaming the exemption of tax given by the ousted Awami League regime for poor revenue mobilisation, he said that it was difficult for him to meet the budget deficit by borrowing from local and foreign sources.
Asked to comment on whether the move is linked to conditions of the International Monetary Fund鈥檚 $4.7 billion loan, he said that it was a very calculative one.
Centre for Policy Dialogue distinguished fellow Mustafizur Rahman said that it seemed that the interim government was under pressure from the International Monetary Fund to increase revenues and withdraw tax exemption.聽
But the move would affect the general people, he said.
The country has met all 12 conditions but one for qualifying for the third tranche of the current loan progarmme that began in 2023 by the ousted AL regime to tackle the severe shortage of dollars, which had been hampering imports and disrupting the supply chain.
NBR has missed the revenue target as it collected Tk 3,69,209 crore until June 2024. The target was to collect Tk 3,94,530 crore.
The IMF board is expected to review the disbursement of the third tranche worth around $645 million in February.
It has already disbursed about $2.3 billion in two tranches, including $1.1 billion in the second tranche in June 2024.
