One of the fundamental flaws with our revenue collection scheme has been an over-reliance on indirect taxes, primarily sales taxes in the form of the value added tax (VAT). In lieu of improving the myriad issues within our tax infrastructure, the previous government instead sought fit to slap indirect taxes on goods and services.
Not only does this end up hurting businesses, especially small to medium enterprises, indirect taxes hurt those at the absolute bottom of the socio-economic hierarchy when it comes to purchasing essential goods.
The government recently announced a VAT hike in a number of goods and services, with a blanket 15% to be imposed on restaurants, and goods such as clothing, tissue paper, and sweets. While the finance adviser to the interim government has clarified that the prices of essential goods are unlikely to be affected by the new VAT scheme, that is still not a complete assurance.
As things stand, Bangladeshis are already reeling from historic levels of inflation, the impact of which is felt the strongest by those near the poverty line. While indirect taxes are indeed unavoidable, the government must ensure that any fluctuations in VATs and other indirect taxes do not end up hurting the most financially vulnerable sections of our population.
On the other hand, given just how challenging it has been for businesses due to factors such as the inflation lowering people’s purchasing power and indeed the lack of any ease in doing business, we hope the government and our revenue infrastructure administration are formulating the revised VAT rates mindfully.
In an ideal situation, Bangladesh would have a healthy tax net as a result of the public’s pro-activity in paying their taxes. However, that requires a restoration of the public’s lost faith in our revenue collection. This is what the interim government needs to focus on.
