VAT, gas price hikes could disrupt business, deter investment: Businesses

Business leaders have raised serious concerns over the proposed hikes in industrial gas prices and value-added tax (VAT), warning that these moves could disrupt businesses, deter investment, and undermine export competitiveness.

Petrobangla – Bangladesh Oil, Gas and Mineral Corporation – has recently submitted a proposal to the Bangladesh Energy Regulatory Commission (Berc) to more than double the per-unit price of gas for industrial and captive consumers – from Tk30 and Tk31.50 to Tk75.72.

The move aims to reduce the government's subsidy burden on gas production costs.

Meanwhile, the National Board of Revenue (NBR) has raised income tax for manufacturers of motorcycles, refrigerators, air conditioners, and compressors from 10% to 20%, reversing a prior commitment to maintain reduced rates until 2032.

In a statement yesterday, the Dhaka Chamber of Commerce and Industry (DCCI) highlighted that, if implemented, these measures would significantly increase production costs, putting inflationary pressure on both industries and consumers.

The DCCI cautioned that this could deter both local and foreign investment, jeopardise Bangladesh's competitive standing in the global market, and hinder the establishment of new industries.

"The proposal to increase gas prices without ensuring an uninterrupted supply presents a formidable challenge for businesses," the DCCI said.

"The cost of doing business will skyrocket, impacting both domestic and export-oriented industries. This would not only reduce profitability but also erode Bangladesh's competitiveness in international markets."

The chamber also pointed to the negative implications of inconsistent policies. It argued that the abrupt withdrawal of promised tax incentives could tarnish Bangladesh's reputation as an investment-friendly destination.

"Such a reversal sends a detrimental message to both local and foreign investors, undermining confidence and casting doubt on policy reliability," the statement added.

Call for reviewing proposed hikes 

The DCCI urged the government, Berc, and Petrobangla to reconsider the proposed gas price hike. It also called for a review of the VAT and tax rate increases, suggesting that these measures could worsen inflationary pressures and operational costs for businesses at a time of global economic uncertainty.

"To foster sustainable economic growth, it is imperative to maintain a stable, business-friendly environment," the DCCI noted. "This requires long-term policy commitments, tax benefits, and active collaboration between the government, private sector, and other stakeholders."

Investment and industrial growth may slow 

The proposed tax hike on manufacturing industries, such as motorcycles, refrigerators, and air-conditioners, comes at a time when businesses are already grappling with an unstable economic climate.

The DCCI warned that these measures could dampen local industrial activity, reduce foreign investment, and ultimately curtail economic recovery.

With Bangladesh striving to recover amid global economic challenges, the DCCI reiterated the need for "cost-effective policies that ensure continuity and stability."

It argued that policy reversals and steep cost increases could undermine the country's efforts to attract investors and sustain economic momentum.

Talking to The Business Standard, Kutubuddin Ahmed, chairman of Envoy Textiles, said, "This move will impact industrial growth. It will affect the industry's competitiveness, especially if anyone wants to increase capacity or set up a new unit."

He stated that no other nation in the world runs its industries solely on self-generated power, except Bangladesh.

Effect on high gas-intensive, value-added industries 

Bangladesh-Thai Chamber of Commerce President Shams Mahmud expressed deep concern over recent reports that Petrobangla is considering raising gas prices for new captive connections.

"This move contradicts all the policy decisions aimed at supporting industries and the private sector in light of the country's upcoming LDC graduation," he added.

Mahmud warned that such a decision would strongly discourage the establishment of import-substitute industries, hinder project expansion for existing facilities, and deter new projects focused on product diversification.

"High gas-intensive, value-added industries, including infrastructure development sectors like cement and steel, will be severely impacted," he said, adding that industries requiring 24-hour operations will also face significant challenges.

Small and medium enterprises (SMEs), already burdened by high interest rates, would be hit particularly hard, creating a severe crisis for this sector, he noted.

"This proposal contradicts the policies for job creation and the private sector growth model proposed during budgetary sessions," Mahmud emphasised.

He also expressed concern over the lack of measures to address critical issues like system losses and the crackdown on illegal gas and electricity connections.

"Instead of enhancing the efficiency of government-run gas-powered plants, which continue to operate inefficiently, the focus appears to be misplaced. This neglect exacerbates the challenges faced by industries reliant on energy security," Mahmud concluded.

Common people may lose buying power 

Abdullah Hil Rakib, managing director of Team Group, told TBS, "If the government further increases power prices by any amount, it will be a suicidal move for the industries."

He added that power prices are already creating hurdles for most industries, as the previous government increased them without proper justification.

"The cost of production has increased by 50% due to rising labour costs and fuel prices, while buyers have not adjusted the prices of clothing. Unable to sustain operations under these conditions, many factories have closed in recent months, leading to dissatisfaction among workers in several factories," said Rakib, who is also the former senior vice president of the BGMEA.

Criticising the gas price hike proposal, he said, "If the price of gas is increased again, it will not only adversely impact the industry but also further diminish the purchasing power of the common people. Such a policy makes it impossible to achieve development for either the general population or the industry."

Shawkat Aziz Russel, president of the Bangladesh Textile Mills Association, said, "We had hoped that after the interim government came to power, the chaos in the energy sector would subside and gas prices would gradually be reduced."

"If gas prices are increased, the industry will be destroyed. Perhaps, at some point, there will be plenty of gas, but there will be no industry to use it," he added.