Traders disgruntled due to sudden move to raise taxes

Traders of different sectors, including ready-made garments (RMG), restaurants, and confectioneries, have expressed dismay at the government’s sudden decision to hike the value-added tax (VAT).

According to them, the tax hike with no prior consultation is an unwise move that will only curtail the people’s purchasing power and put the businesses in a tight corner.

However, the finance adviser, Salehuddin Ahmed, came up with a different explanation and hoped that the tax hikes would not impact the prices adversely.

While talking to the reporters at the secretariat on Thursday, he said, “Taxes on all essentials have been reduced to zero. You should notice it.”

In the middle of the current 2024-25 fiscal year, the interim government has taken initiatives to boost revenue collections by increasing taxes, including VAT and supplementary duties. In the aftermath, VAT on 43 types of goods and services, including RMG, AC restaurants, sweets, and non-AC hotels, is likely to rise to 15 per cent.

The draft of the VAT and supplementary duty (amendment) ordinance - 2025 was approved in principle in an advisory council meeting on Wednesday, subject to vetting by the legislative and parliamentary affairs division. The authorities are yet to disclose the changes in detail.

Traders from different sectors noted that the businesses could not recover fully from the shock of the political changeover, while inflation remains high. The tax raise would only exacerbate their woes.

They also mentioned that the government did not feel it necessary to consult with the businesses before making the crucial decision. Such a tax hike is tolerable only when there is political and economic stability in the country.

VAT is a key source of revenue for the government. Of the 525,000 VAT-registered entities, around 350,000 pay VAT regularly, while the others remain outside the tax net. The revenue board’s efforts to bring the remaining entities under the tax net is quite inadequate. It even failed to install electronic fiscal devices (EFDs) to the required extent.

From the very beginning of the current fiscal year, the government has been maintaining a deficit in revenue collection. The NBR collected only Tk 1.27 trillion in revenue until November, against a target of Tk 1.69 trillion. The total revenue collection target for FY 2024-25 is Tk 4.80 trillion.

Meanwhile, the International Monetary Fund (IMF) has made increasing the VAT rate to 15 per cent a condition in its $4.7 billion loan programme.

Before the clearance of the fourth tranche, an IMF delegation visited Dhaka in December. The government requested to increase the loan amount by $750 million, while the IMF agreed, though with some additional tough conditions, including separation of the revenue collection and regulating agencies and increasing revenue collection.

Mohammad Abdur Razzaque, chairman of the Research and Policy Integration for Development (RAPID), told Prothom Alo that the government has no alternative to increasing revenue collection. It would have been better if revenue collection could be increased through direct tax. Finding it difficult, the government adopted the easier method of raising VAT. The people's sufferings would have been lower despite the VAT raise if the situation was stable.

Now, there is a 5 per cent VAT on bills in air-conditioned restaurants, but it may rise to 15 per cent as per the new decision. 

When asked about the impact, Imran Hasan, secretary general of the Bangladesh restaurant owners association, expressed grave concern and said a three-fold hike in VAT would leave a disastrous impact on them. The income tax will also go up with the VAT.

“Those who run businesses complying with rules and regulations have always been subjected to injustice. In fact, a conspiracy is going on to push many businesses to the brink, in consultation with the IMF,” he said, adding the traders would announce a protest programme if the decision is not revoked in the meantime.

Alongside restaurants, the clothes are going to be costlier as the VAT on bills of textile outlets is being raised from existing 7.5 per cent to 15 per cent. Beside, the authorities are set to double the VAT on sweets, from 7.5 per cent to 15 per cent. 

Madhav Chandra Ghosh, former president of the Bangladesh sweet producers association, asserted that the government should have discussed with the traders before making the decision. When VAT was reduced to 7.5 per cent earlier, the volume of VAT collection from sweet stalls went up, as people feel comfortable with low VAT rates. 

Among other to-be-affected products and sectors are  biscuit, pickle, air travel, CR coils, tissue paper, mattresses, and driving license cards. Supplementary duties on liquor bills are also set to rise, while the ceiling for businesses’ turnover taxes will be lowered to annual transactions between Tk 3 million and Tk 5 million, against the current ceiling of Tk 5 million to 30 million. 

Dhaka Chamber of Commerce and Industry (DCCI) president Taskin Ahmed said such a move would raise production and operational costs, further accelerating inflation and reducing consumer purchasing power. 

He urged the government to consult with stakeholders and adopt balanced policies that consider the socio-economic impact.