VAT on ACs, refrigerators likely to be halved to 7.5pc, will prices drop?

The government is set to slash the value added tax (VAT) on the production of refrigerators, freezers and air conditioners (AC) by half in the upcoming 2026-27 fiscal year budget.

Currently, domestic manufacturing of these appliances is subject to a 15 per cent VAT. In the next budget, this rate is expected to be cut to 7.5 per cent, which could lead to lower prices for consumers, according to sources at the Ministry of Finance.

"Higher VAT at the production stage has led to a recent surge in imports of refrigerators, freezers and air conditioners," an NBR official told Prothom Alo on condition of anonymity. "We are reducing the tax to curb imports and support domestic companies, many of whom have reported a slump in business."

In addition, the existing VAT facility on mobile phones and laptops, ranging from 7.5 to 10 per cent depending on specifications, is expected to remain in place until 2030.

Currently, if a mobile phone or laptop manufacturer produces at least two components locally and imports the rest for assembly in the country, it pays 7.5 per cent VAT at the production stage.

If a company imports all components and only assembles them locally, it pays 10 per cent VAT. Meanwhile, the VAT exemption on on ship imports will remain in place. Large ocean-going ships will continue to be exempt from VAT until 30 June 2027.

To qualify for the benefit, the ships must have a capacity of more than 5,000 deadweight tonnage (DWT).

While this exemption was originally scheduled to expire at the end of the current fiscal year, the government has decided to extend it for another year.

Additionally, the 7.5 per cent VAT on the import of Liquefied Petroleum Gas (LPG) will also remain unchanged in the upcoming fiscal year.

Currently, LPG is used as cooking fuel in households, as autogas for vehicles and as industrial energy in various sectors.

At present, several companies in Bangladesh, including Walton, Electromart, Transcom, Esquire, Singer Bangladesh, Butterfly, Rangs, Electra International, Minister, Vision and LG produce and market air conditioners, refrigerators and other electronic appliances in the country.

According to NBR sources, the VAT rate at the production stage for refrigerators, freezers and air conditioners was 5 per cent until the 2023–24 fiscal year. It was raised to 7.5 per cent in 2024–25 and further increased to 15 per cent in the 2025–26 fiscal year.

Industry stakeholders say the proposed VAT reduction will have a positive impact on the sector and may as well help lower prices for consumers. Pran-RFL Group is one of the leading local manufacturers in this sector.

When contacted, Pran-RFL Group Marketing Director Kamruzzaman Kamal told Prothom Alo that demand for refrigerators, freezers and air conditioners is rising.

He said a VAT cut would benefit local industries. If VAT is reduced, prices will certainly drop.

Asked how much prices might fall, he said any reduction in VAT would ultimately be passed on to consumers. Industry stakeholders said that due to the ongoing intense heat, demand for refrigerators, freezers and air conditioners has increased.

They added that the proposed VAT relief at this time would bring some relief for consumers. Manufacturers have also described the government's decision to slash VAT is expected to offer at least some relief to consumers.

Selim Ullah Selim, director (Marketing) of Jamuna Electronics, told Prothom Alo, "The sector has been going through difficulties for the past two years. Raw material prices have climbed, operating costs have surged by 30 per cent. In such a situation, a VAT cut would provide some relief."

However, manufacturers had earlier urged the National Board of Revenue (NBR) to withdraw the VAT entirely.