Airfares, cigarettes, hotel-restaurant costs likely to go up as NBR plans to slap more taxes
On IMF advice, NBR aims to collect an additional Tk12,000 crore in revenue through VAT, SD hikes
Highlights:
- Duty on local flights may increase from Tk500-Tk700
- For Saarc countries, the duty might rise from Tk500-Tk1,000
- International flight duty could go up from Tk3,000-Tk4,000
- VAT on clothing may rise from 7.5%-15%
- Retail price of premium-tier cigarettes may increase from Tk160-Tk170.
Consumers may soon dig deeper in their pockets for air travel, cigarettes, LPG, clothing, restaurant meals, and hotel stays as the government plans to increase taxes on these goods and services at a time when the overall inflation is already high, over 11%.
Following the IMF's recommendations, the National Board of Revenue (NBR) is planning to increase the value-added tax (VAT) on restaurants from 5% to 15%, while the rate on non-AC hotels could be doubled from 7.5% to 15%, according to NBR sources.
The cost of air tickets for domestic, Saarc countries, and international destinations is also expected to increase. The NBR plans to raise the excise duty on air tickets. The duty for local flights could be increased from Tk500 to Tk700. For Saarc countries, the duty may be raised from Tk500 to Tk1,000, and for international flights, it may go up from Tk3,000 to Tk4,000. The NBR aims to collect an extra Tk300 crore from these increases.
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In addition, the VAT on both branded and non-branded clothing items could rise from 7.5% to 15%, and the 5% VAT on all types of trading may increase to 7.5%. The VAT on liquefied petroleum gas (LPG) at the trading stage may rise to 7.5% from 5%. In total, VAT on 43 goods and services could be raised to 15%.
The price and supplementary duty on tobacco products will be raised, targeting an additional revenue of nearly Tk4,000 crore for the remainder of the fiscal year.
Furthermore, the supplementary duty (SD) on mobile talk-time may also be increased from the current 20% to 25% and VAT on medicine could be raised from the current 2.4% to 5%.
While the proposal has been submitted to the interim government's Advisory Council, NBR sources said that the Council has recommended not increasing VAT on medicines and supplementary duty on mobile talk-time at the moment. The revenue authority may issue an order regarding these changes soon.
A senior NBR official, speaking to TBS on condition of anonymity, said, "The NBR proposal has been sent to the Advisory Council. On Wednesday, it was asked to make corrections in certain areas. With the corrections, an ordinance will be issued soon."
However, the official declined to comment on what specific corrections were being considered.
In response to the International Monetary Fund's (IMF) new revenue target for the government, the NBR is fast-tracking efforts to raise VAT and SD in order to generate an additional Tk12,000 crore – an unprecedented mid-year VAT hike.
Experts warned that a sudden rise in VAT, amid the ongoing high inflation, will place additional pressure on consumers.
Md Lutfor Rahman, a former NBR member, told TBS, "In the past, VAT hikes in the middle of the fiscal year have occurred, but it was in one or two cases. I am not aware of such a sudden, large-scale VAT hike."
"The abrupt hike will create further pressure on consumers. A Tk10 VAT hike could increase the price of goods by Tk30 in the market," he added.
Expressing dissatisfaction with the decision to raise VAT based on IMF advice, Lutfor Rahman commented, "Letting others handle your own domestic issues never leads to progress."
SM Nazer Hossain, vice president of the Consumer Association of Bangladesh, also expressed concerns, saying, "We have never seen such a sudden VAT hike. It will have a severely negative impact on the public."
He continued, "Prices of goods have long been spiralling out of control. If taxes are increased this way, it will only cause more hardship for consumers. The shock of inflation could intensify."
Tobacco, other goods subject to potential tax hikes
Supplementary Duty (SD) on imports of seven types of goods, such as detergents, soaps, and paints, could be increased by up to 50%.
The price of tobacco products is also set to rise. Currently, the retail price of premium-tier cigarettes is fixed at Tk160, but it may increase to Tk170. Likewise, the maximum retail price (MRP) for high, medium, and low-tier cigarettes may rise to Tk130, Tk80, and Tk55, respectively.
Previously, VAT was 4% on businesses' annual sales (turnover) between Tk50 lakh and Tk3 crore. However, under the new proposal, a 15% VAT would apply to businesses with an annual turnover of Tk50 lakh. Additionally, VAT registration was not mandatory for businesses with turnover below Tk50 lakh, but this threshold has now been reduced to Tk30 lakh. As a result, businesses with annual turnover exceeding Tk30 lakh will be required to register for VAT.
'Traders will not accept 15% VAT'
A section of traders has expressed strong opposition to the proposed 15% flat VAT, claiming that they will not accept its implementation. Traders from Old Dhaka, in particular, have been vocal about the VAT issue.
Solaiman Parsee Faisal, chief executive officer of Faisal Polymer Industries Limited, told TBS, "If the 15% VAT is enforced, many traders will not be able to claim rebates (input tax credits), which will make the system untenable for them."
"If implemented forcibly, traders may initiate a movement," he said, demanding the reinstatement of the package VAT system that was used previously.
Currently, VAT on branded clothing in the country stands at 7.5%.
Abdullah Hil Rakib, managing director of Twelve Clothing, a brand under the Team Group umbrella, told TBS, "A sudden increase to 15% VAT would severely harm this sector. The 15% rate is too steep. It will decrease sales, harm existing businesses, and push transactions into the informal sector. As a result, the government may actually collect less VAT."
Criticising the decision, he said, "Such decisions are made when bureaucrats fail to understand the realities of business."
Focus should be on direct taxation
Professor Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue (CPD), believes the government should prioritise increasing direct tax (income tax) collection rather than raising VAT to boost revenue.
He explained, "Increasing VAT affects all consumers. VAT collection can be improved by reducing evasion, not by simply raising the VAT rate."
He also mentioned that VAT should be unified and that consideration should be given to whether a rate lower than 15% would be more manageable for consumers.
Former NBR member Md Farid Uddin previously told TBS that the VAT rate should be reduced from 15%.
Dr M Masrur Reaz, chairman of Policy Exchange Bangladesh, argued that the NBR should conduct a thorough study on how to increase revenue collection. "If taxes need to be increased, it should be done in a targeted way. But the current approach seems to rely on easy revenue collection."
