The interim government suddenly decided to increase the value added tax (MUSAC) or VAT. According to relevant sources, the government will work to introduce some amendments to the value-added tax and supplementary fees law under pressure from the International Monetary Fund. The value-added tax may rise to 15 percent on 43 types of goods and services, including ready-made clothing, air-conditioned restaurants, sweets, biscuits, pickles, wraps, paper napkins, and non-air-conditioned hotels. There is a risk that the price of these products and services will rise if VAT increases. As a result, prices of these goods and services may rise before the budget. This will reduce the purchasing power of the general public. Business will be in crisis again. Economists and businessmen have already begun to criticize this decision taken by the government. They say it would be better to increase revenue collection by increasing direct taxes.
The draft Value Added Tax and Supplementary Duty (Amendment) Bill 2025 was approved in principle at a meeting of the Advisory Council on Wednesday. Although the approval of the amended draft law was announced at the end of the meeting, the changes that will be made regarding value-added tax have not been officially announced.
However, the financial advisor to the interim government. Saleh Al-Din Ahmed said that even if the value-added tax increases, the price of goods will not be affected. Because customs duties on all essential products have been reduced to zero. On Thursday (January 2), after a meeting of the Cabinet Committee on Government Procurement, the financial advisor told reporters: “Our main inflation-weighted indicators are rice and pulses.” The things we raise taxes on are not very important in terms of raising inflation.
Asked whether this government decision would cause hardship to the general public, he said: “I don’t think there will be any hardship.”
But businessmen say that increasing the value-added tax rate at this moment is a suicidal decision. Many people in the business community say the government’s decision may reduce revenues rather than increase them. The upward trend in inflation is already causing the general public to sigh, they say. There, increasing VAT rate on life-saving medicines, liquefied gas, milk powder, biscuits, pickles, tomato ketchup or chutney, juice, tissue paper, fruits, soap and detergent powder, sweets, slippers will increase the pressure on the people.
Business leaders in various sectors say that the business sector has suffered a major shock following the political change in the student uprising. The losses have not yet been overcome. In such a situation, the decision to increase VAT is considered a blow.
It is known that the International Monetary Fund recently set a 15 percent value-added tax requirement as a condition for the loan. A delegation from the International Monetary Fund visited Bangladesh last December before disbursing the fourth tranche of the ongoing loan program worth 4.7 billion US dollars to Bangladesh. Bangladesh then requested to increase the size of the ongoing loan program by another $750 million. The International Monetary Fund has also agreed to pay this amount. Therefore, the IMF has set some stringent conditions for increasing revenue collection, including tax collection and separation of policy-making agencies. Economists believe that the initiative to increase VAT has been taken to achieve this condition. According to them, the government needs money. Therefore, initiatives have been taken to increase revenues by increasing value-added tax and duties on various products and services. As a result, the cost pressure on the middle class and upper middle class will increase slightly. Some economists even believe that risks may arise in the economy.
In this context, the Executive Director of the private research organization Policy Exchange said: Mashhour Riaz said, if the value-added tax rate is increased in this case, inflation will definitely rise. It is believed that, in the current context, if the VAT rate is increased without proper research and well-thought-out analysis, it may not bring benefits to the economy. Even this decision may create risks for the economy.
In this context, Vice President of the Central Committee of Consumers Association of Bangladesh (CAB), SM Nagar Hossain, said that every product except cigarettes is essential for quality of life. In this case, if their prices rise, people’s living costs will rise. Then inflation will increase.
By the way, VAT is the main means of government revenue collection. The number of establishments registered for value-added tax currently stands at 5,25,000. Of this, an average of 350,000 companies pay VAT regularly. Apart from this, there are still thousands of companies, and these companies cannot be subjected to VAT. Even the NBR has not been able to install the Electronic Fiscal Device (EFD) as required to increase VAT collection.
In the current financial year 2024-25, NBR’s revenue collection target is Tk 4 lakh. Till last November, the target was Tk 1 lakh (Rs 69,000 crore). In contrast, the revenue collected amounted to 1 lakh 27 thousand crores. That is, the revenue shortfall is still Rs 42,000 crore. The government is supposed to impose a new value-added tax to address this revenue deficit.
If the proposed VAT is implemented, the general public will have to pay a 15 percent VAT on their food bill when they go to eat in restaurants. Until recently, a 5 percent VAT was charged on food bills in air-conditioned or air-conditioned restaurants.
In this regard, Secretary General of the Bangladesh Restaurant Owners Association, Imran Hassan, said that restaurant owners are concerned about the decision to increase value-added tax. He said that if VAT was increased, it would have a terrible impact on businesses. Income tax will also increase along with VAT. Small traders will be affected by this.
“This is part of the inefficiency of handing over the industry to corporations by destroying small hotels and restaurants,” he complained.
In this context, Taskin Ahmed, Chairman of the Dhaka Chamber, said that such action by the government will increase the cost of production and operating businesses, which will ultimately reflect on the price of the product and accelerate inflation. It is believed that this decision will reduce the purchasing power of consumers. It can have a negative impact on the economy.
Goods and services on which VAT increases
Until now, a 5% VAT has been imposed on food bills in air-conditioned restaurants. It can be increased to 15 percent. Besides, the VAT rate may increase on clothing purchases. Currently, VAT is 7.5% on the invoice of ready-made clothing outlets. An initiative has been taken to increase it to 15 percent.
An initiative is being taken to increase the value-added tax rate from 7.5 percent to 15 percent on the purchase of sweets. VAT rates on non-air-conditioned hotel services may also rise if you travel. There is currently a 7.5 percent VAT on non-air-conditioned hotel services. An initiative has been taken to increase it to 15 percent.
Apart from this, other sectors that will get 15 percent VAT include biscuits, pickles, CR rolls, mattresses, transformers, tissue paper, etc.
Apart from this, Bangladesh Road Transport Authority (BRTA) has also taken the initiative to impose 15 percent value added tax while issuing driving license card. Apart from this, an initiative has been taken to increase the existing supplementary fee of 20 per cent to 30 per cent in case of liquor bill. In addition to the initiative to increase VAT on goods and services, business establishments may have to pay sales tax only if their annual turnover is between Tk 30,000 and Tk 50,000. At present, the tax is paid on turnover ranging from Tk 50 lakh to Tk 3 crore. According to the new proposal, sales of goods and services can attract VAT at the rate of 15 per cent if the annual turnover is Rs 50 lakh.
The government will increase supplementary duties on many products and services at the import, production and service levels. For example, at the import stage, supplementary duties on fruit juice were increased from 20 percent to 30 percent, on copper from 60 to 100 percent, and on betel nut from 30 to 45 percent. In addition, additional fees may be charged for speaking on cell phones (talk time). Customs duties may increase on travel. As a result, the cost of air travel may also rise. The amount of indirect charges on domestic flights may be increased from Tk 500 to Tk 700. In case of traveling abroad, the excise tax may be increased from 500 to 700 taka for traveling to SAARC countries and from 2 thousand taka to 2 thousand 500 taka outside SAARC countries (within Asia), and the excise tax may be increased from 3 From 1,000 taka to 4,000 taka for travel to Europe and America.