Tax burden doubles on AC, motorcycle and fridge manufacturers

The National Board of Revenue (NBR) has doubled the income tax rate for companies manufacturing motorcycles, refrigerators, air conditioners, and compressors, according to an order issued on 7 January.

The order, signed by Abdur Rahman Khan, chairman of the NBR, stated, "The industry income from refrigerator, motorcycle, air conditioner, and compressor manufacturing will be taxed at 20%." This change will take effect from the fiscal year 2025-26 (FY26).

However, a senior official of the income tax wing of the NBR told The Business Standard that although the new tax rate is officially applicable from FY26, the income year calculation refers to the previous fiscal year.

Consequently, the tax will effectively be calculated based on income generated in the current fiscal year (FY25).

In addition, the advance income tax (AIT) on imports for these companies has been increased to 4%, up from 2%, effective immediately from the date of the order.

As per a 2021 statutory regulatory order (SRO), these companies had been enjoying a reduced tax rate of 10% until 2032. However, this incentive has now been revoked just three and a half years later, effectively doubling the tax rate.

"Manufacturers had been enjoying a 5% tax rate from 2009 to 2021, which was increased to 10% in 2021," NBR member Badiul Alam explained.

The NBR has raised tax rates amid discussions on increasing VAT and supplementary duties on around 50 products and services, adding pressure to consumers' wallets. Industry insiders and experts have expressed concerns about the potential impact of the tax increase.

Syed Md Aminul Karim, former NBR member of income tax policy, told TBS earlier that if taxes are increased, this pressure will ultimately lead to higher prices, and companies will also face some pressure.

He further added, "The sudden cancellation of tax benefits promised until 2032 highlights that Bangladesh's tax policy is not investment-friendly. Investors who made decisions based on these incentives will perceive this change as a negative signal."

Mohammed Mesbah Uddin, chief marketing officer of Fair Electronics, a major player in the air conditioner and refrigerator market, told TBS that With the ongoing increase in VAT and taxes, product prices will rise even further.

"On one hand, real income is decreasing due to high inflation, and on the other, continuous tax hikes are pushing up product prices. As a result, our sales are declining," he said.

"Any further increase in taxes will raise product prices and make the market even more contracted," he warned.

The tax hike, combined with rising VAT and supplementary duties, is expected to increase costs for consumers and create additional challenges for manufacturers.

Industry stakeholders have called for a review of the policy to maintain a stable and investment-friendly environment.