The interim government has hiked up and then quickly reduced the recently added value-added tax (VAT) and supplementary duty (SD) on a few items and services within 13 days of making the decision.
However, economists, general people and insiders believe this will not bring relief, especially when the hardships that began under the ousted government have yet to ease and inflation continues to rise.
Experts warn increasing taxes may impact the middle class more than the poor as the middle class buys many more VAT-imposed products, which will increase the cost of living.
“The focus should have been on stopping tax evasion, reducing indirect taxes, and increasing direct taxes instead of increasing indirect taxes in times of such high inflationary pressure. VAT has been a burden on the middle class for a long time. It will increase even more this time,” Mustafizur Rahman, executive director of the Centre for Policy Dialogue (CPD), told Dhaka Tribune.
“The fact that VAT and SD of some sectors have been reconsidered today proves that they [interim govt] are thinking sensibly. However, the budget strategy for FY26 should be decided considering this tax increase and the resulting reaction,” he added.
Mustafiq thinks a flat rate should be fixed. “It could be 12% or 15%. Along with this, the tax net should be increased, and emphasis should be placed on digitalization,” he said.
Meanwhile, Consumers Association of Bangladesh (CAB) Senior Vice-President SM Nazer Hossain said the reduction in tariffs on certain products was not reflected at the consumer level.
“On top of this, the increase in new tariffs and taxes would further raise the cost of living,” he said, predicting that expenses could rise by at least 15%.
A recent report by the committee responsible for drafting a White Paper on Bangladesh's economy says actual inflation stands between 15% and 17%. However, the latest data from the Bureau of Statistics (BBS) shows average inflation was 10.34% in 2024, up from 9.48% in 2023.
The report adds that people were under significant inflationary pressure last year, which has not been matched by proportional income growth.
Food inflation stood at 12.92% in December, while overall inflation dropped slightly to 10.89%. The national wage rate, however, has been stuck at around 8% for several months, and the disparity between inflation and wage growth is causing increased hardship for the population.
Earlier, Debapriya Bhattacharya, head of the white paper committee, criticized the interim government as “reckless” for inconsiderately increasing VAT on certain products and services while raising indirect taxes instead of direct taxes.
“We are astonished by how VAT has been raised so indiscriminately. If a country wants to enhance tax collection, it must gradually shift towards direct taxation. Yet, we see no plan to collect taxes directly,” said the distinguished fellow of CPD.
Meanwhile, Pran-RFL Group CEO and Executive Member of Bangladesh Agro-Processors Association (BAPA) Ahsan Khan Chowdhury said the recent decision by the government will have an adverse impact on products.
“Higher VAT would reduce affordability, disrupt business volume, and harm farmers by shrinking demand for raw produce. We aim to contribute to government revenue but not at the cost of poor and middle-class consumers,” he added.
Akij Group Director Zahirul Alam said arbitrary tax hikes could hurt small enterprises, farm workers, and low-income consumers and urged collaboration between the government and industry leaders.
Reduced VAT, SD
The National Board of Revenue (NBR) has issued several notifications by re-fixing the rates of VAT, supplementary duty and excise duty on some goods and services, which were increased on January 9.
As per an NBR press release issued on Wednesday, the VAT rate for these items has been reduced from 15% to 10%, which was previously 7.5% before the hike. This means the hike has been readjusted to 2.5% today instead of the previous 7.5%.
For restaurants, the VAT was reversed back to 5% from 15%.
The release also said the SD hike on mobile talk time, mobile internet and internet service providers (ISPs) has been removed.
For mobile, SD was hiked to 23% from 20%. The NBR has now reversed it back.
For ISPs, there was no SD, but a 10% tax was imposed. This has also been withdrawn.
Additionally, the increased VAT on non-branded clothing has also been withdrawn.
NBR, in its release, said it had provided massive tax exemptions on import duty, regulatory duty, VAT, advance income tax and advance tax on edible oil, sugar, potatoes, eggs, onions, rice, dates and pesticides in the last few months in the interest of the people of the country.
Notably, the government increased VAT and duties on over 100 products and services effective from January 9.
