Under pressure from the International Monetary Fund (IMF), Bangladesh is set to impose additional VAT and duties on a number of essential goods in a bid to address the ongoing inflationary pressures and slowing economy, production, and supply chains.
List of affected products includes medicines, powdered milk, biscuits, juice, fruit, soap, sweets, mobile phone calls, internet usage, food at hotels and restaurants, air tickets, cigarettes, and tobacco.
This decision, taken by the VAT office of the National Board of Revenue (NBR), comes midway through the fiscal year as part of the country's $4.7 billion loan agreement with the IMF, which aims to maintain forex reserves.
A press release issued by the NBR on Wednesday (1 January) stated that an initial 15% VAT would be applied to 43 types of goods and services that currently have VAT rates of 5% and 7.5%, respectively.
The proposal for this increase was discussed at an advisory council meeting held at the Chief Adviser’s Office, and a VAT official confirmed that it has been approved in principle.
Air-conditioned restaurants, which currently pay 5% VAT on food bills, will see this increase to 15% under the new proposal.
Similarly, the VAT for ready-made garment outlets will rise from 7.5% to 15%. In non-AC hotels, VAT on sweets and services will also be hiked from 7.5% to 15%.
The proposed VAT increase also covers a range of other products, including biscuits, pickles, CR coils, mattresses, transformers, tissue paper, and Bangladesh Road Transport Authority (BRTA) driving license cards at the production stage, all of which will now be taxed at 15%.
In addition, the government is set to implement a turnover tax based on the annual turnover of business establishments.
Currently, turnover tax is paid only by businesses with an annual turnover between Tk50 lakh and Tk3 crore.
The new proposal will extend this tax to businesses with turnovers as low as Tk30 lakh.
For businesses with turnovers exceeding Tk5 crore, a 15% VAT will be applied to all goods and services produced by the business.
The supplementary duty on liquor bills is also set to rise, from 20% to 30%.
At the import stage, supplementary duties on fruit juice, tobacco, and betel nut will be increased, with taxes on fruit juice rising from 20% to 30%, on tobacco from 60% to 100%, and on betel nut from 30% to 45%.
The excise duty on air tickets is expected to increase as well. For domestic flights, the excise duty will rise from Tk500 to Tk700, while for international flights, the duty for trips to SAARC countries will rise from Tk500 to Tk700.
For trips outside SAARC countries but within Asia, the duty will increase from Tk2,000 to Tk2,500, and for flights to Europe and America, it will go up from Tk3,000 to Tk4,000.
Typically, tax increases are passed by parliament, but the absence of sitting MPs has forced the interim government to take the proposal forward through an ordinance, which is expected to be issued by the president next week.
As part of the agreement with the IMF to receive the fourth tranche of the loan, the NBR has faced the challenge of increasing the tax-to-GDP ratio by 0.6% in the current fiscal year.
During a meeting with an IMF delegation in Dhaka on 4 December last year, the NBR sought to relax previous conditions and agreed to increase the ratio by 0.4% for the fiscal year.
However, the NBR was unable to meet last year's target and has been tasked with raising the ratio by an additional 0.2%age points in the current fiscal year.
Since then, the financial advisor and the NBR chairman have warned the public about the impending tax hikes, urging citizens to prepare for the increased financial burden.
