Costlier life: NBR plans VAT hike on fridge, mobile phone, AC, LPG cylinder

Consumers may face unwelcoming news in the upcoming budget as the revenue authority is considering raising the value-added tax for some locally manufactured electronics goods that currently benefit from either exemptions or reduced rates.

 The items may include refrigerators, air coolers, mobile phones, and LPG cylinders according to officials of the National Board of Revenue (NBR).

Besides, there could be a rise in VAT to a flat 15% and supplementary duty on some sugary juices. Their manufacturers are also likely to see an increase of minimum tax on their annual turnover.

The revenue board is also planning significant increases in value and supplementary duties on tobacco products.

Consumers and industry insiders opposed the plan, stating that it will raise pressure on people who have already been grappling with inflation for nearly two years. 

Health experts, on the other hand, applaud the NBR's plan about sugary items and tobacco products. 

At present, in the manufacturing stage, the VAT rates are 5% for refrigerators, 2% to 7.5% for mobile phones based on the degree of value addition and 5% for the trading stage. 

Some sugary beverages including juices currently face VAT rates ranging from 5% to 7.5%, while air conditioners enjoy full VAT exemption in the manufacturing stage.

In case of LPG cylinders VAT, on manufacturing stage is 7.5%. 

Sources closely involved with NBR's fiscal policy-making, hinted that there may be a 5% in VAT during the manufacturing stage for air conditioners. 

For refrigerators and mobile handsets, the hike is likely to range between over 2%. Besides, VAT on LPG cylinders may rise slightly, said the official. 

During several pre-budget meetings held over the past three months, NBR Chairman Abu Hena Md Rahmatul Muneem hinted about shrinking of tax and VAT exemptions for those sectors which have already reached a maturity level.

"For industries that have achieved solid standing, support [tax exemptions] should gradually be tapered off," he said. 

Consumers would be affected

SM Nazer Hossain, vice president of the Consumer Association of Bangladesh (CAB), told TBS that any indirect tax eventually impacts the end user. 

"If the government increases VAT on mobile phone handsets, LPG cylinders, fridges, or air conditioners, businesses will transfer the burden to consumers," he said.

This will raise consumer costs, adding to the already high inflationary pressures consumers have been facing for an extended period, he added.

Opposing any further increase in indirect taxes such as VAT or supplementary duties, he urged an increase in direct taxes, which higher-income individuals can afford.

Mohammed Mesbah Uddin, chief marketing officer of Fair Group, one of the largest electronic item manufacturers in the country, told TBS that the profit margin on electronics items is already low. 

"Therefore, if there is any tax hike at any stage, we will be compelled to pass on the costs to consumers accordingly. We have no other option," he said.

He added that electronics items are no longer considered luxury goods, so there is no justification for a tax increase, especially considering that the existing VAT rates are already higher considering the country's economy. 

MA Razzaque, chairman of Research and Policy Integration for Development (RAPID), told TBS that if VAT is increased on relatively low-cost mobile phones or LPG cylinders, it would impose additional financial strain on low-income individuals.

Industries want 3 more years

Fair Group's Mesbah Uddin acknowledged that local mobile manufacturers earlier benefited from tax exemptions but lost out on these advantages for three years due to the Covid-19 pandemic and other issues. The devaluation of the local currency by about 30% over the last two years further increased financial pressure on them.

He said mobile manufacturers are already struggling with the impact of VAT imposition. Mobile phone sales dropped by 35% in 2023 and continue to decline this year. 

"We request the continuation of the existing VAT and import tax facility for another three years. We need policies that ensure the industry's sustainability," he added. 

However, RAPID Chairman Razzaque said exemptions or benefits for products such as refrigerators and air conditioners can be reduced. 

"The government is facing pressure to increase revenue, and these industries have also been receiving benefits for an extended period," he added.

A decade ago, almost all mobile phones used in Bangladesh were imported. However, local manufacturing firms fulfil over 95% of the demand. In the case of refrigerators and air coolers, Bangladesh meets over 90% of the local demand, with support from the NBR.

The revenue authority, however, has begun withdrawing these benefits over the last two years.

Regarding VAT on sugary beverages, public health expert Benazir Ahmed told TBS that it would be a good move if the government increases taxes to limit the consumption of sugar-sweetened beverages, as these items are harmful to health.

"Sugar and salt are essentially white poisons, so we should discourage their consumption by any means," he said.

Additional Tk6,000cr from tobacco 

NBR sources also hinted that the authority is considering increasing the value and supplementary taxes on tobacco products.

For cigarettes, there are four tiers based on pricing: lower, medium, high, and premium. Currently, the prices are Tk45, Tk67, Tk113, and Tk150 respectively for a pack of 10 sticks. The supplementary duty ranges from 58% to 65% across these four tiers.

Sources suggest that in the four tiers, retail prices may increase by Tk5 or more for each tier. Besides, there is a likelihood of supplementary duty being raised by 1% to 2% in certain stages.

"We have to wait until the last moment before the budget, as things can still change," said an NBR official, adding, "If our plan is ultimately implemented, we anticipate collecting about Tk6,000 crore in revenue from this sector over the next fiscal year."

The tobacco product sector stands as the single largest revenue-earning source for the government, amounting to over Tk35,000 crore annually. However, there is a strong campaign against tobacco products, advocating for a significant increase in tobacco product prices to reduce consumption.

Ataur Rahman, advocacy manager for Campaign for Tobacco Free Kids, told TBS that they  have been advocating for a significant price hike, particularly for the lower-tier tobacco products, to discourage consumption. 

"However, if the price increases by Tk5, it may not effectively reduce consumption," he added.