Cooking, cellphone, internet, medicine to cost more

In the morning, the stove in every household is lit to make breakfast. If Liquefied Petroleum (LP) gas is used for that cooking, it will now cost more than before. If there are fruits like apple, pears and grapes or fruit juice included on the breakfast menu, that will cost more as well.

If you want to make important calls or use internet on the cellphone there’s no relief in that either. When recharging your phone with Tk 100, Tk 30 will be deducted for taxes. If you go to a restaurant , you will have to pay extra there as well. Even when you go to the pharmacy to buy medicine on your way back home at night, that too will cost a bit more extra now.

That’s how the government has increased the value added tax (VAT) and supplementary duty anew on more than a hundred essential items and services. The burden of this additional tax came at a time when people are already under the pressure of high inflation. The food inflation was about 13 per cent even in this December. Increasing duties and taxes on a hundred items and services in a situation like this, will obviously gear people’s cost of living a notch up.

Palash Ahmed works in a private firm in Badda of the capital. He lives in a rented house with his wife and two children in Satarkul area. He told this correspondent on Friday night that his salary did not increase at the same rate as the prices of goods have increased in the last two years. The items on which VAT has been increased afresh are daily essentials. While, VAT can be increased just like that our salaries will not be increasing. So, it will be even more difficult to maintain the living standards. 

Executive director of SANEM, Selim Raihan expressed his anger about the rise in duties and taxes in a post on social media platform Facebook on Friday, writing, “These decisions clearly prove that there is no proper coordination among the monetary policy, revenue policy and market management of this government. The government should extend the reach of assistance for the poor and the common public at this time of high inflation while taking effective initiatives to maintain stability in the market.”

When contacted on this topic later, Selim Raihan told Prothom Alo that the current interim government is also taking the easy way out just like the ousted Awami League government. They should have reviewed the budget of the Awami League government. Since they didn’t do that, the interim government is basically following the framework left by the last government.

He added, “In the past, many influential individuals and companies have taken unfair advantage of tax exemptions. And, many affluent people have evaded taxes. There’s the scope to increase direct taxes by ending those. We expect this government to take on that difficult task.”

Living costs to go up

The government issued an ordinance this Thursday announcing a sudden increase in VAT and supplementary duty on more than a hundred commodities and services in the middle of the current fiscal year, which came into effect that same night.

The proposal to increase VAT and supplementary duty suggested by the National Board of Revenue (NBR) was passed in the advisory council meeting of the interim government on 1 January without any discussion with the stakeholders. Then starting from the consumer level to traders’ association and economists discussed and criticised the decision.

Later on 4 January, the NBR claimed in a statement that the goods and services on which additional VAT, supplementary duty and excise duty are being imposed do not include essential items. This will not increase the price of daily commodities or have an impact on inflation.

Economists however say that additional taxes have been imposed on medicines, LPG, restaurant food, cellphone services, biscuits-cakes, tissue paper, ready-made garments, imported fruits, and juices, which are commodities and services used by the common public on a daily basis. As a result, people’s expenses will naturally go up.

When asked, former president of the Consumer Association of Bangladesh (CAB) Golam Rahman told Prothom Alo that it is better to increase taxes than to run the government by printing more money. However, increasing taxes on daily essentials put low-income people under pressure.

Instead of increasing taxes on daily essentials, tax collection needs to be emphasised on so that the tax collected from the public is not pocketed by someone else. The matter of VAT collection needs to be made completely online. He also commented that it was not right to increase VAT on medicine at the trader level.

What was the alternative?

The list of goods and services to experience an increase in tax and duty include cell phone calls and use of internet. The VAT rate on both branded and non-branded clothing has been doubled. The cost of dining at air-conditioned (AC) restaurants will increase too as the VAT imposed there has been increased threefold to 15 per cent.

In addition to that various other commodities including medicines, sweets, LP gas, imported fruits, fruit juices, drinks, biscuits, spectacle frames, various types of tissue papers, and cigarettes are also at the risk of price hike. Based on the item, a supplementary duty of 15 to 30 per cent and a VAT of 15 per cent have been imposed on these goods. The rise in excise duty will also increase the cost of air travel.

The International Monetary Fund (IMF) under various conditions had provided a loan of USD 4.7 billion (470 crore) to deal with the economic crisis during the ousted Awami League government’s regime. Only last month, the interim government requested to increase the loan amount by another USD 750 million (75 crore). And, the organisation has also agreed to allocate that amount.

However, the IMF has proposed some stern conditions such as separating the tax collection and policy-making agencies along with increasing revenue collection. The government has decided to increase duties and taxes in the middle of the fiscal year mainly to comply with their conditions, say people involved with revenue collection.

When looked into the matter it was found that the IMF has always been talking about a singular VAT rate. However, the organisation did not propose that it should be fixed at 15 per cent. Rather the rate can go higher or lower than that according to the government’s wishes. The IMF is in favour of setting the same rate for all items though.

Apart from that, the organisation had given a condition to increase Bangladesh’s revenue collection by 0.5 per cent annually in ratio to our GDP. How they want to increase that depends on the government. If the government wants, it can collect additional revenue by increasing income tax, expanding tax extent and by preventing tax evasion.

When asked, former lead economist at the Dhaka office of the World Bank Zahid Hussain told Prothom Alo that the VAT and supplementary duty is increased amid high inflation, which isn’t a timely decision at all. Tax rates should be increased only when there is no other way. It could have been tried to manage the situation with steps like reducing corruption, increasing the tax net, and reducing government expenditure.

He also said that it’s not clear whether the government has decided to increase duties and taxes in the middle of the fiscal year only due to the IMF’s conditions. Even if the IMF has actually proposed such conditions, the government could have asked for six months’ time from the organisation. And, steps could have been taken on these issues in the next budget based on dialogues and discussions, he believes.

Also Read