A SIMPLE trip to the grocery store feels like a budgeting nightmare for the middle class. The recent increase in value-added tax and supplementary duty on over 100 items has triggered frustration and raised questions about whether the government is balancing its books at the expense of ordinary citizens.
Taxes and value-added tax are undeniably major sources of government revenue, but when excessive, they become a burden which disproportionately falls on middle-income families. As the primary consumers of most commodities, they are now forced to bear the brunt of these additional costs. Unlike the wealthiest citizens, who have alternative financial cushions, the middle class finds itself squeezed by rising prices with no relief in sight.
The government鈥檚 urgency to increase revenue is understandable. The National Board of Revenue collected only Tk 1.3 lakh crore in six months, far below expectations, leaving an ambitious Tk 4 lakh crore target to be met in the next five months 鈥� a goal that seems increasingly unrealistic. Adding to the pressure, the International Monetary Fund has imposed conditions requiring the government to boost revenue collection while narrowing the budget deficit. Additionally, the decision to provide an extra dearness allowance for government employees will require an additional Tk 7,000 crore. In response, the government has opted for the easiest but most shortsighted solution: increase in value-added tax and supplementary duties.
But is raising taxes really the only option? It is not. The government anticipates earning an additional Tk 12,000 crore from the increased value-added tax rates, but this figure pales in comparison to the economic toll it will take on middle- and lower-middle-income families. Higher value-added tax rates could even backfire, as they encourage tax evasion and push more businesses into the informal economy, ultimately reducing government revenue rather than increasing it.
Looking at the list of affected items, it becomes clear that most are commodities heavily consumed by the middle class. This raises an even more troubling question: is the government making hardworking citizens pay for money laundering and state corruption? Instead of expanding the tax net to ensure the wealthiest individuals and corporations contribute their fair share, the burden is again being placed on everyday consumers.
The economic ripple effects of this decision cannot be ignored. Reports suggest that small and medium businesses, and local vendors 鈥� many of whom rely on middle-class customers 鈥� are already seeing a decline in sales. If purchasing power continues to fall, demand for goods will decrease, forcing businesses to cut production and lay off employees. This, in turn, could exacerbate the already pressing issue of unemployment and lead to broader economic instability.
The government must explore alternative revenue sources. One crucial step would be widening the tax base 鈥� currently, a tiny fraction of Bangladesh鈥檚 population pays income tax, leaving the gross domestic product-to-tax ratio alarmingly low. Strengthening tax collection mechanisms and ensuring that all eligible individuals and businesses pay their dues could generate far more revenue than simply squeezing the middle class.
Another avenue is attracting foreign direct investment. By creating a more investor-friendly environment, Bangladesh could boost its economy without resorting to regressive taxation. Similarly, tourism 鈥� an industry that sustains entire economies elsewhere 鈥� remains underdeveloped. A well-structured tourism strategy could bring in substantial foreign currency and create thousands of jobs.
Additionally, the government must address inefficiencies within its own institutions. Many state-owned enterprises, from jute mills to public transport services, have been shut down or operate at losses due to mismanagement and corruption. Reforming these sectors and ensuring transparency could turn them into revenue-generating assets rather than financial liabilities.
Another critical measure is tackling illicit financial flows. Instead of imposing heavier taxes on those who already contribute, recovering even a fraction of these lost funds would provide a massive financial boost. Stronger anti-corruption efforts and international cooperation in tracking laundered money must be prioritised.
The impact of these tax hikes extends beyond the economy; it has social consequences as well. If costs continue to rise unchecked, purchasing power will dwindle, triggering a cycle of lower demand, production cuts, and rising unemployment. This could fuel public discontent, leading to social unrest. The government must act now to prevent this outcome by supporting sectors that generate foreign income, such as remittances. Streamlining services for remittance workers and providing better incentives could significantly enhance this sector鈥檚 contributions to the economy.
In the end, while increasing value-added tax and supplementary duties may provide short-term revenue relief, the government must consider the broader economic and social implications of its actions. A more balanced and sustainable approach 鈥� one that does not disproportionately impact the middle class 鈥� is essential to ensuring long-term economic stability. Rather than taking the easy route of increasing taxes, policymakers must implement strategic reforms, curb corruption, and develop alternative revenue streams. If not, the cost of these tax increases will extend far beyond higher grocery bills. It could weaken the very foundation of the economic growth.
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Saiful Islam is a lecturer in public administration at Begum Rokeya University, Rangpur.