VAT on the rise: Eating out, buying clothes, sweets, will all cost more

A 15 per cent (VAT) Value Added Tax will be added to the restaurant bill when eating out. All these days a 5 per cent VAT would be added to the bill at air-conditioned restaurants. The interim government has decided on principle to increase that to 15 per cent.

Certain amendments have been made to the VAT and Supplementary Duty Act for this purpose. A draft of the VAT and Supplementary Duty (Amendment) Act 2025, subject to vetting by the parliamentary affairs division, was approved on principal at the advisor council meeting held on Wednesday. While the matter of approving the amended draft act was made known at the end of the meeting, the government has not officially declared what specific changes are being made regarding VAT. However, sources in the National Board or Revenue (NBR) gave certain details of these changes.

According to the NBR sources, alongside restaurant bills, initiative has been taken to increase VAT on garments too. Presently the VAT at readymade garment outlets is 7.5 per cent. This is being increased to 15 per cent. That means people will have to spend more when buying clothes. Consumers will have to pay extra in buying sweets too. VAT at sweetmeat shops has been increased from 7.5 per cent to 15 per cent.

In the travel sector, VAT may increase on non-AC hotel services too. Presently the VAT at non-air-conditioned hotels is 7.5 per cent. That is being increased to 15 per cent.

Sources connected to NBR say suddenly half way through the 2024-25 financial year, steps have been taken to increase revenue by supplementary duty and other taxes. Initially a 15 per cent VAT will be imposed on 43 types of commodities and services. The proposal to raise VAT rates was raised at the advisory council meeting held yesterday, Wednesday, at the chief advisor's office.

The advisory council has given its approval to the draft act in this regard. Once vetted by the law ministry, the NBR VAT division will issue an order to increase VAT, said sources.

Other than restaurants, garments and hotels, 15 per cent VAT will also be placed on biscuits, pickles, CR coils, mattresses, transformers, tissue paper, etc. Steps are also being taken to place a 15 per cent tax on issuing Bangladesh Road Transport Authority (BRTA) driving licence cards.

NBR VAT department officials say that an appropriate VAT rate will be imposed in order to do away with the culture of impunity, extend the VAT reach and gradually lessen reduced rates and establish an ideal rate.
The International Monetary Fund (IMF) recently called for the VAT rate to be increased to 15 per cent as a condition to its loan.

An IMF mission visited Bangladesh in December last year before releasing the fourth tranche of its USD 4.7 billion (USD 470 crore) loan to Bangladesh. Bangladesh had requested for the size of this loan programme to be increase by another USD 750 million (Tk 75 crore). IMF agreed to provide this, but came up with certain stiff conditions including a separation of the revenue collect and policy making agency and increasing revenue collection. Economists feel this decision to increase tax has basically been taken to fulfill IMF's conditions.

Centre for Policy Dialogue (CPD)'s distinguished fellow Mustafizur Rahman told Prothom Alo, "Given the overall state of the economy, the pressure of liabilities on the government is increasing. The government needs funds. That is why initiative has been taken to increase revenue by increasing VAT and duty on various commodities and services. This will somewhat add to the pressure of expenses on the middle and higher middle class. At the same time, our revenue and GDP ratio is extremely low. That needs to be increased. That is why mid-term measures must be taken to increase direct taxes. However, attention must also be given to ensure that the general people are not harmed too much at this time of high inflation."
Smaller businesses may face turnover taxes

Alongside raising VAT on 43 types of commodities and services, turnover tax may also be imposed on business establishments with turnover of Tk 3 million (Tk 30 lakh) to Tk 5 million (Tk 50 lakh). Presently turnover tax is imposed on businesses with turnover of Tk 5 million (Tk 50 lakh) to Tk 30 million (Tk 3 crore). According to the new proposal, if annual turnover exceeds Tk 5 million (Tk 50 lakh), a 15 per cent VAT may be imposed on commodity and service transactions.

The present 20 per cent supplementary duty on liquor bills is being increased to 30 per cent.

NBR sources say that alongside liquor, the government is also upping supplementary taxes on several other commodities at an import, production and service level. For example, supplementary duty on fruit juice at the import stage will be increased from 20 per cent to 30 per cent; for tobacco, 60 per cent to 100 per cent; for betel nut, from 30 per cent to 45 per cent. The NBR sources also said that supplementary duty may also be increased in mobile phone talk time.

Air travel costs may go up too because steps are being taken to increase excise duty. NBR sources say excise duty on domestic flights may be increased from Tk 500 to Tk 700 and in the for air travel within SARC countries, also from Tk 500 to Tk 700. Outside of SARC countries, but within Asia, the excise duty may go up from Tk 2000 to Tk 2500 and for air travel to Europe and America, it may be increased from Tk 3000 to Tk 4000. That will be airfare will increase as the increased duty will be added to the ticket costs.

Serving and former NBR officials say that there really is no scope to increase taxes without the Jatiya Sangsad (national parliament). That is why the tax will have to be increased by an ordinance under the president's orders. NBR sources say this ordinance may be enacted next week.