FICCI slams lack of stakeholder consultation prior to VAT, SD hikes
The abrupt hike in VAT and SD rates is likely to significantly raise the cost of doing business, it adds
The Foreign Investors' Chambers of Commerce & Industry (FICCI) Bangladesh has expressed concerns over the recent government decision to increase value added tax (VAT) and supplementary duty (SD) on a range of products without prior consultation with key stakeholders.
Representing approximately 90% of the country's total Foreign Direct Investment (FDI) across major revenue-generating sectors such as tobacco, telecom, energy, and financial institutions, FICCI warned that the move could have serious repercussions. These sectors collectively contribute about 30% of Bangladesh's internal revenue.
In a press release, FICCI today (13 January) highlighted that the abrupt hike in VAT and SD rates is likely to significantly raise the cost of doing business in the country, impacting both consumers and businesses.
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The chamber noted that this decision threatens the financial stability of enterprises that are critical for generating tax revenue and driving economic growth.
Business costs significantly rise
FICCI highlighted major concerns for businesses due to the VAT rate increase to 15% under non-recoverable conditions, including: VAT raised from 7.5% to 15% in procurement services, with no input VAT recovery, hiked from 10% to 15% in repairs & maintenance, with no input recovery and from 10% to 15% in transport services, with only 20% input recovery while increased from 5% to 15% in restaurants, with no input VAT recovery.
Furthermore, general consumers will face potential price hikes as industries aim to minimise losses, with retail purchase costs rising by 2.5% due to an increase in the VAT rate from 5% to 7.5%.
The ultimate impact on the government will be a significant decrease in consumption, leading to a reduction in overall revenue.
FICCI criticised the lack of consultation in formulating these policy changes, describing it as a departure from the collaborative approach typically seen in Bangladesh. The chamber warned that unilateral decisions without stakeholder input could undermine investor confidence and deter future FDI inflows.
"Policies made without extensive study or stakeholder consultation send negative signals to both domestic and international investors," FICCI stated.
Call for review
Urging the government to reconsider its decision, FICCI emphasised the importance of transparent and constructive engagement with the business community to ensure policies are both rational and sustainable.
As Bangladesh aims to sustain its economic growth and attract more FDI, the chamber stressed that fostering a stable and predictable business environment is critical.
