The interim government's decision to shift towards a regressive tax structure, aiming to generate additional revenue of over Tk12,000 crore, to comply with the International Monetary Fund's (IMF) conditions, has sparked widespread concern.
Particularly, it places a disproportionate burden on lower-income individuals.
A progressive tax system, which levies higher taxes on those with greater incomes, serves to reduce income inequality by ensuring the wealthier contribute more.
In contrast, regressive taxes, such as those now being implemented, impose a heavier burden on lower-income earners, as they end up paying a higher percentage of their income compared to the affluent.
Globally, governments typically collect the majority of their revenue through direct taxes like income tax, a method that Bangladesh has been slow to adopt.
Instead, the country continues to rely heavily on indirect taxes, which unfairly affect the less affluent.
Data from the National Board of Revenue (NBR) reveals that 63% of the Tk4.80 lakh crore revenue target for the current fiscal year will be sourced from indirect taxes, including Value Added Tax (VAT) and import duties.
10 years ago, this figure stood at 65%.
According to experts, the burden of the additional Tk12,270 crore required by the IMF has been shifted entirely to indirect taxes, further eroding the principles of progressive taxation.
This approach marks a departure from efforts to reduce tax evasion or increase direct taxes, favouring instead a broad increase in VAT and supplementary duties on nearly 100 products.
These changes are set to impact ordinary consumers, particularly those with lower incomes, most severely.
"NBR should have focused on increasing direct taxes. Raising VAT and supplementary duties will only increase the financial burden on ordinary people," said Centre for Policy Dialogue (CPD) Distinguished Fellow Professor Mustafizur Rahman.
Adding that income inequality is already widening, he further said, "Efforts to boost revenue should have concentrated on increasing income taxes and curbing tax evasion, but this has not been prioritised. These new tax increases will exert even greater pressure on ordinary people amid high inflation."
Criticising the timing of these tax hikes, Policy Exchange Bangladesh Chairman Mashrur Reaz said, "Expenses of low-income people will rise even further, and the pressure on small-scale businesses will increase."
The tax hikes extend to essential services and everyday items, including mobile phones, internet services, LP gas, medicines, fruits, soaps, detergents, and biscuits.
These increases, along with higher VAT on clothing and meals at average restaurants, disproportionately affect lower-income consumers.
Air travellers, many of whom are workers heading abroad, are also facing higher costs due to increased taxes.
The government has also set a target to collect an additional Tk4,500 crore from tobacco products, a sector where lower-income individuals are the primary consumers.
However, questions remain about the effectiveness of these tax increases in reducing tobacco consumption.
The reliance on indirect taxes is further highlighted by the NBR's plans to generate approximately Tk12,270 crore from nearly 100 products and services.
In light of these developments, concerns about escalating inequality and the burden on lower-income groups continue to mount, prompting calls for a reassessment of the country's tax policies.
