Under the recommendations of the International Monetary Fund (IMF), the interim government is set to raise Value Added Tax (VAT) on over 1,000 products, triggering price hikes across multiple sectors.
Economists warn that this decision, coming amidst record inflation, will intensify the financial strain on citizens.
Following vetting by the Ministry of Law, the enhanced VAT measures will be implemented shortly through a presidential ordinance.
These hikes will increase costs at restaurants and for apparel purchases, as well as impact a range of daily essentials such as biscuits, pickles, CR coils, mattresses, transformers, and tissue paper.
Even obtaining a driving licence card from the Bangladesh Road Transport Authority (BRTA) will become costlier.
VAT will now extend to sectors contributing 14.6% of the GDP, including agriculture, livestock, fisheries, education, healthcare, public administration, defence, and social protection services. The garment industry, a major production sector, will also face increased VAT.
Costs are expected to rise for raw material imports and production processes for refrigerators, air conditioners, lifts, motorcycles, mobile handsets, and home appliances.
Additionally, VAT will be imposed on software development and manufacturing IT-related products such as computers, laptops, servers, and motherboards.
As part of efforts to promote geobags over polythene bags, VAT on raw materials like PP staple fibres will also rise. In the transport sector, goods and passenger transport services will bear higher VAT.
According to the 2012 VAT and Supplementary Duty Act’s First Schedule, basic necessities and 489 HS-code listed items, as well as around 50 services, will experience higher VAT.
The adjustments will affect approximately 500 goods, impacting about 43% of GDP-linked products.
Speaking to the media, Belal Hossain Chowdhury, a member of the NBR VAT policy wing, stated, “The withdrawal or reduction of VAT exemptions has increased the VAT rate for several products.”
Sources indicate that the ordinance on VAT increases is set for issuance within this month.
Economists predict that the middle class will bear the brunt of these measures.
Finance Adviser Salehuddin Ahmed justified the VAT adjustments, asserting that thresholds exist to limit their impact.
"For restaurants above the three-star category and businesses with turnover exceeding Tk50 lakh, VAT has been increased. Essential items have been kept close to zero tax," he explained.
Regarding airfare, he noted, "Domestic flight fares have increased by Tk200, which is unlikely to burden passengers."
The IMF has stipulated that Bangladesh must increase its tax-to-GDP ratio to 8.8% by the end of the 2024–25 fiscal year, requiring additional revenue of over Tk73,000 crore. The final year of the IMF’s loan programme, 2025–26, sets a target ratio of 9.5%, necessitating an additional Tk96,000 crore in revenue.
However, Centre for Policy Dialogue (CPD) Distinguished Fellow Mostafizur Rahman observed, “The government is under financial strain and is attempting to boost revenue through VAT and duty hikes on various goods and services. This will increase costs for middle- and upper-middle-class households.”
Despite assurances from the government, economists and analysts remain sceptical about the broader socio-economic impact of these tax reforms, particularly on the already burdened populace.
