VAT hike won't impact inflation or prices of essentials: Finance adviser

Highlights:

• Won't negatively affect lives of ordinary people
• Items with minimal inflation weight see VAT hikes
• Govt initiated the move to bridge the revenue gap
• No impact on essential services like education, health, and IT

The increase in value-added tax (VAT) on 43 goods and services will not significantly drive overall inflation or lead to substantial commodity price hikes that negatively affect ordinary consumers, Finance Adviser Salehuddin Ahmed said today (2 January), assuring the public.

Briefing reporters after a meeting of the Cabinet Committee on Government Procurement, he said, "Essential commodities like rice and pulses – key drivers of inflation – will not see increased duties as their duties have been reduced to zero, offering relief to consumers."

The interim government's Advisory Council on 1 January approved the Amendment of the Value-added Tax and Supplementary Duty Act, resulting in a VAT increase on 43 goods and services, including the fresh imposition of VAT on some items.

Responding to reporters' query regarding the impact of the tax hike, Salehuddin said the items whose prices are being increased have little importance in driving inflation. Higher taxes have been imposed on luxury items, such as three-star and higher-rated hotels, while sparing establishments of standard quality.

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"The objective is to ensure a balanced revenue collection system that does not inconvenience the general population," he said, also downplaying the impact of the VAT increase on airfares, stating that the additional Tk200 raise is a marginal amount for frequent domestic travellers.

Bangladesh's tax rates were low when compared to other countries like Nepal and Bhutan, the finance adviser said, emphasising the government's commitment to maintaining near-zero tax rates on essential goods.

Addressing concerns about the timing of this decision, he explained that it was necessary to address the revenue gap created by significant government concessions and this decision was not made at the behest of the International Monetary Fund (IMF).

One VAT rate for most products, services from next fiscal

Regarding potential impacts on ordinary people, Salehuddin reiterated that there will be no negative impact on essential services like education, health, and IT, which will continue to receive increased allocations.

He stressed the importance of revenue generation to avoid excessive deficit financing.

The adviser acknowledged that the tax and customs review is still ongoing but declined to comment on potential tax increases in those areas.

Added VAT burden looms as govt races to meet IMF's revenue target

Addressing the economic outlook for the new year, Salehuddin said, "The economy has become quite strong, but stability is now required." 

He acknowledged improvements in the banking sector, with the Bangladesh Bank supporting weaker banks to restore discipline