The National Board of Revenue (NBR) finds itself in a precarious situation following the government's decision to increase VAT and gas prices on various goods and services.
Traders have issued a stern warning to shut down factories and protest on the streets if the government does not reverse these decisions.
In response, NBR has sought guidance from the Ministry of Finance, while some reductions in VAT and duties have already been announced for specific sectors.
On Thursday (16 January), concessions were made in response to the traders' demands, including reductions in VAT and supplementary duties on several goods and services.
Additionally, the increased excise duty on tickets for Hajj pilgrims has been lowered.
Numerous business associations and professionals submitted petitions to NBR on Thursday, requesting the reduction of VAT and supplementary duties.
The traders cited the severe impact of the COVID-19 pandemic on the country's business sector, which had only just begun to recover when the Russia-Ukraine conflict triggered a surge in the dollar's value, causing the suspension of letters of credit and a dramatic increase in the cost of importing essential goods.
VAT Reduction Announced Without SRO
The government has decided to lower the VAT rate from 15% to 10% on garments and confectionery.
The VAT for non-AC hotels has been reduced from 15% to 10%, down from the previous rate of 7.5%.
Additionally, changes have been made to the VAT on motor vehicle garages and workshops, now set at 10%.
To alleviate the costs for Hajj pilgrims, the excise duty on air tickets has been completely withdrawn.
Further announcements were made regarding reductions in VAT and supplementary duties on internet services, mobile phones, and raw materials for pharmaceuticals.
NBR Member (VAT Policy) Belal Hossain Chowdhury told the press, “The mid-fiscal year ordinance increasing VAT and duties has sparked reactions from the business community. We are considering their demands and will take action based on the Ministry of Finance’s recommendations. However, it is necessary to eventually standardise the VAT rate at 15% across all sectors.”
He also assured that promises have been made to reduce VAT in certain areas, with the official notification to follow.
In light of the situation, NBR has sent a letter to the Ministry of Finance seeking advice on the next steps.
Finance Adviser Dr Salehuddin Ahmed has convened meetings with officials from the Chief Adviser's Office to discuss potential reductions in VAT and duties on certain goods and services.
Traders Stand Firm on VAT Reduction Demands
On Thursday morning, several hundred business owners from the hotel, restaurant, and confectionery sectors gathered in front of the Revenue Building in Agargaon, demanding VAT reductions.
They declared they would not leave until their demands were met, prompting NBR to announce VAT reductions without awaiting approval from the Ministry of Finance.
Bangladesh Restaurant Owners Association Secretary Imran Hasan expressed, “The rising dollar has already put immense pressure on the hotel and restaurant businesses. Increasing VAT from 5% to 15% exacerbated the situation. We took to the streets demanding VAT reductions, and we would not have returned without them. NBR has now acknowledged our demands.”
He further added, “While 70% of restaurants remain outside the VAT net, those of us who comply were subjected to additional burdens.
The government can increase revenue by reducing administrative costs and unnecessary projects instead of imposing arbitrary taxes akin to the East India Company.
Former FBCCI president AK Azad criticised the government's policies, stating, “Where will we go if the current policies are implemented? There were no discussions with traders before increasing gas prices and VAT. Investment has declined, and in this economic climate, the impact of rising gas prices and VAT needs to be considered carefully.”
He added, “Businesses are being treated like criminals. Everyone wants to exploit us.”
Ahsan Khan Chowdhury, chairman and CEO of PRAN-RFL Group, warned that increasing VAT on essential agricultural products like mangoes, tomatoes, pineapples, bananas, guavas, and banana pulp from 5% to 15% would severely harm marginal farmers.
“If VAT and gas prices continue to rise, the prices of these goods will increase, deterring consumers from purchasing them. We urge the government to retract the increased VAT and duties on processed food products and reconsider the decision to hike gas prices,” he stated.
MA Hashem, president of the Bangladesh Agro-Processors Association (BAPA), noted, “With VAT increases on biscuits and cakes alongside rising gas prices, it is no longer feasible to produce a biscuit for Tk5. Prices will inevitably rise, making it difficult to sustain business without reducing VAT and supplementary duties.”
Economists Weigh In
Former chairman of NBR, Dr Mohammad Abdul Majid criticised the decision to increase VAT and supplementary duties, stating, “The government has numerous avenues to boost revenue. Arbitrary increases in VAT and duties only raise costs, discouraging investment in industries.”
Another revenue sector analyst, NBR Member Farid Uddin, highlighted the broader implications, noting that higher business costs due to increased VAT and duties will ultimately affect market prices, burdening ordinary citizens.”
