VAT, SD on more than 100 items raised
Economists and a consumer rights body have criticised the rise in the value-added tax and supplementary duty on more than 100 products and services midway of the current financial year, saying that the increase would squeeze further the purchasing capacity of people who are reeling with double-digit inflation.
The interim government on Thursday issued two ordinances increasing the VAT and supplementary duties on more than 100 products and services, including mobile phone talk time, internet usages, cigarette, alcoholic drinks, biscuits, tissue paper, imported fruits, restaurant bills, sauces, spectacles, clothes, air tickets, liquefied petroleum gas, milk, show room, confectionary items and electric poles.
While the National Board of Revenue has made the changes to generate more revenue in line with conditions under the current $4.7 billion loan programme with the International Monetary Fund, the economists and rights body said the move would spike up inflation already prevailing at a decade high.
On January 2, one day after the advisory council at a meeting approved amendments to the Value Added Tax and the Supplementary Duty Act to make the rise happen, finance adviser Salehuddin Ahmed dismissed any adverse impact of the rise on the overall general inflation.
He said that the move was imperative to meet the budget deficit in the current 2024-25 financial year, marked by the mass uprising that ousted the Awami League regime on August 5, 2024 and paved the way for the interim government assuming power on August 8.
Former World Bank Dhaka office chief economist Zahid Hussain said that the expenditure control mechanism instead of the income generation option could be utilised to meet the budget deficit.
The present move looked less calculative, he said, referring to the prevailing inflation.
Consumer Association of Bangladesh vice-president SM Nazir Hossain said the adjustment of VAT and supplementary duty rates midway of a financial year did not happen before.
Had the NBR checked tax evasion by bringing businesses under the VAT net, it would not have any need to increase the rate to generate more revenues, he said.
The country has met all 12 conditions but one for qualifying for the third tranche of the current IMF loan programme that was initiated by the ousted AL government in 2023 to tackle a severe dollar shortage that has been hampering imports and disrupting the supply chain.
The NBR has missed the revenue collection 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 about $645 million in February and the next tranche six months later.
It has already disbursed about $2.3 billion in two tranches, including $1.1 billion in the second tranche in June 2024, which largely helped the government to offset pressure on the country鈥檚 foreign exchange reserves and budget deficit.
Amid criticisms that like the ousted authoritarian AL regime, the interim government inclines towards indirect taxes, the NBR on January 7 increased the corporate tax on industries making motorcycle, freezer, refrigerator and air conditioner in a move to increase revenue generation from the direct tax.
The new tax rate of 20 per cent from previous 10 per cent will come into force from the FY 2025鈥�26 beginning on July 1, 2025, and will remain valid until June 2032.
Economists said that manufacturers and consumers would feel the impact of the move from now on.
Centre for Policy Dialogue distinguished fellow Mustafizur Rahman said that the fallout of increased VAT and income tax would be passed on to consumers.
Already reeling with the price spiral of essentials, consumers will suffer more due to the latest VAT and duty rise, he said, adding that the timing of the move was not right.
The inflation rate eased a bit to 10.89 per cent in December, but remained at the double-digit level for the past three months in a row.