Dollar appreciation lifts govt revenue but pressure mounts on people

The appreciation of US dollars increases the government's revenue, but it triggers a rise in import costs and commodity prices, and eventually that pressure mounts on people.

The government revenue rose because it imposed customs tariffs on additional dollar prices. Customs authorities raised the dollar prices to 113.80 taka per dollar in June from 110 taka per dollar to impose import duties.

As a result, the government will collect an additional 1.5 taka per kg from sugar alone. As dollar prices increased to 114 taka a dollar from 86 taka a dollar over the last two years, the additional revenue also rose to about 10 taka.

Currently, the total tax burden on the import of unrefined sugars is 59 per cent plus a definite duty of 3 taka per kg. Currently, the global price of unrefined sugars for import is a little over 600 US dollars a tonne, thus, import duty stands at about 40 taka per kg of sugar. The government collects customs duty worth over 50 billion taka from sugar annually.

The commerce ministry sent letters to the National Board of Revenue (NBR) from time to time requesting the latter to reduce duty on sugar, but the NBR did not give that much rebate.

Like sugar, the import cost of other products including fuel oil, liquid petroleum gas (LPG), edible oil, the raw material of essentials, powdered milk, spices and fruits increase once dollar prices rise, and it is the people who bear the burden. They have already been under the pressure of high inflation over the past one and a half years.

Economists stressed reducing duties considering the high inflation, but the government responded nothing. The tax on edible oil was cut significantly during the last Ramadan, but it was lifted later, and a price hike followed.

Binayak Sen, director general of Bangladesh Institute of Development Studies (BIDS), told Prothom Alo he in principle thinks it is necessary to bring down duties on essentials to nearly zero for at least one year, and some advance income tax may exist. The government may consider the duty policy thoroughly to control inflation, he added.

There is no duty on the import of several essentials like wheat and lentils. However, the tax burden is much higher. There are a total of 59 per cent taxes on spices including cardamom, cumin and cinnamon, which is widely used during Eid-ul-Azha. That means the government receives 59 taka from the sale of spices worth 100 taka.

The dollar price is likely to increase for customs duty because the exchange rate has been fixed at 117 taka a dollar as the Bangladesh Bank maintains a crawling peg method. Dollar prices may also increase at Sonali Bank in the coming days, thus, it will see a higher rate of taxation and may trigger a price hike.

Global prices surged after Russia invaded Ukraine in February 2022. Dollar prices started rising in the country in May of that year from 86 taka a dollar.

Prices of many products fell to the pre-Russia-Ukraine war level in many countries but it did not happen that much in Bangladesh. According to the World Bank, the average price of crude oil fell to 82 dollars per barrel in May from 85 dollars per barrel in January 2022. Oil prices surged past 120 dollars after the Russia-Ukraine war broke.

The government increased the price of diesel by 15 taka to 80 taka a litre on 4 November 2021 before the Russia-Ukraine war broke out. Diesel price rose once again by Tk 34 to 114 taka a litre in August 2022. Prices continued to fluctuate, and now, prices are adjusted every month. Diesel price stands at 108 taka a litter in June.

Dollar appreciation, duty and tendency to profit are reasons for not dropping the diesel price that much. Currently, the tax rate on fuel oil import, including the duty and advance income tax is about 16 per cent. There are also various taxes at local levels. The government received 148 billion taka in import duty, VAT and income taxes from Bangladesh Petroleum Corporation (BPC) in the 2022-23 fiscal.

One of the goals for imposing duties on imports is to protect the local industry so that cheap foreign products cannot flood the local markets, but there is a tendency in Bangladesh to impose duties with a view to collecting revenue instead of giving protection. Economists said the average duty rate is much higher in Bangladesh than in other developing countries.

Centre for Policy Dialogue (CPD)'s distinguished fellow professor Mustafizur Rahman told Prothom Alo it is necessary to protect local industry, but that must be at a rational rate for a certain period. If more duties are levied on the pretext of protection, consumers have to pay the price.

Bangladesh will graduate from the list of least developed countries soon; the country must abide by the rules of the World Trade Organization (WTO) and cannot impose duties as its will. So, Bangladesh will have to focus on increasing direct tax or income tax, he added.

* The report, originally published in the print and online editions of Prothom Alo, has been rewritten in English by Hasanul Banna