Cutting tariff: Little relief for consumers as NBR plays numbers game

As part of its tariff rationalisation move to prepare for a post-LDC global trade regime, the National Board of Revenue (NBR) plans to reduce supplementary and regulatory duties at import level on over 300 goods, roughly 10% of the country's tariff lines, in the next fiscal year.

The items that are considered for duty cuts, however, account for less than Tk100 crore annual imports out of more than Tk6 lakh crore in the last fiscal year, and its revenue impact would be less than 0.02% of import tax, an official at the NBR told The Business Standard.

The proposed list includes meat and offal of bovine animals, Pacific and other types of salmon and tuna fish, heads, tails, maws, and other fish offal, dry fish, and certain vegetables, NBR sources said.

The NBR reduced duties on some 300 goods in the current fiscal year, too.

Experts caution that the potential benefits of the move to consumers might be marginal, considering "very insignificant" import volumes of the listed goods which exclude most-consumed items.

Bangladesh's average import duty is much higher than those of both lower-middle income countries and least developed countries (LDCs), making consumers pay 45% more than the global price of consumer goods, they have pointed out, suggesting drastic tariff cuts at import level.

This will be of little help for the country's post-LDC export preparedness as well, they point out. The country needs to lower tariffs to World Trade Organization's bound rates and prepare its export sectors to thrive after 2026, when Bangladesh will graduate from LDC status and lose trade and tariff privileges.

Currently, there are about 4,500 items in Bangladesh's tariff lines, where supplementary duties range from 10% to 500% and regulatory duty from 3% to 20%.

"We have primarily made a list of more than 300 products for a reduction of supplementary and regulatory duties," a senior official of the NBR, who is working closely for the next fiscal policy, told TBS on condition of anonymity.

The NBR official said the list has been presented to both the finance minister and then to the prime minister. The government is likely to announce the proposed national budget for FY25 on 6 June.

The revenue officials say the revenue board is considering the move as part of its preparations for competitiveness for exports after graduation from the LDC status.

"We have a plan to reduce import tariffs on about 1,000 tariff lines within the next two years out of more than 4,000. If we are able to decrease our anticipated list for this year according to our plan, the number will stand at about 600. By 2026, we aim to cut another 400 tariff lines," an official said.

"Although the items under these lists are not heavily imported, or there will be no significant revenue loss, we have a target from 2026 onwards to reduce tariffs on items that are heavily imported and have an impact on revenue," he added.

The revenue board may want to show the international community that we have reduced duties on so many items. However, it may not have any positive impact on consumers. It may be notional.

Ahsan H Mansur, Executive Director, PRI

Reduced duty 'notional'

Zaidi Sattar, chairman of Policy Research Institute of Bangladesh (PRI), citing a study of his institution, told TBS that Bangladesh's average import duty is 14% and nominal protection rate is more than 27%, whereas in the lower-middle-income countries, the average nominal protection rate is only 7%, LDCs' average is 11% and the world average is 6%.

Ahsan H Mansur, executive director of the PRI, said, "The revenue board may want to show the international community that we have reduced duties on so many items. However, it may not have any positive impact on consumers. It may be notional."

He also said, "According to international standards, local industry cannot be given so much tariff protection. Either the tariff should be reduced or an equal tariff rate should be imposed on the same product produced locally."

No relief from price shocks

Experts argue that if the revenue board's import tariff policies do not result in lower prices for consumers, then simply reducing duties on a large number of products serves no real purpose. It would be a mere show without a meaningful impact, they say.

Muhammad Abdul Mazid, a former NBR chairman, told TBS, "If NBR's decision doesn't have any positive impact on consumers' wallets, then this is meaningless."

He further said, "Why are essential items like children's food supplements and imported fruits subject to high tariffs? These items are no more luxury items. These tariffs create a discriminatory system where lower-income families are deprived of these necessities or forced to pay more. Shouldn't these items be readily accessible to all?"

Only affluent people can afford to consume these types of products, he said.

Mazid said, "Instead of relying heavily on indirect taxes, Bangladesh should focus more on direct and broad tax bases. This approach would be fairer as it wouldn't disproportionately burden lower-income groups who are already heavily impacted by indirect taxes."

According to NBR data, in FY24, the authorities collected more than Tk3.31 lakh crore in revenues and about two-thirds came from indirect taxes, such as import tax and value-added tax from local sources. In FY25, NBR's revenue target is Tk4.1 lakh crore, of which the import tax collection target is over Tk1.1 lakh crore.

High tariff wall makes consumers pay higher

Economist Zaidi Sattar said consumable items' import tariff rates are much higher than other items in Bangladesh.

"In the case of consumable goods, the average nominal protection rate is 45%. It indicates that Bangladeshi consumers have to pay 45% more for an item than that of the average price of the international market," Zaidi said.

He also said, "We have found that the additional tariff that Bangladeshi consumers have to pay on imported goods is about 5.6% of the GDP."

Due to local currency devaluation against the dollar by about 30% over the last two years, the revenue board's import tariff soared at the same rates simultaneously, without an increase of any import tax rates, Zaidi said.

"So, the revenue board should decrease import tax by at least by 15%," he suggested.

Md Lutfor Rahman, former NBR member of customs policy, told TBS, "While some products may see duty reductions in the upcoming budget, others will likely face newly imposed or increased supplementary and regulatory duties."

Higher import tariffs increase the risk of mis-declaration, he said. "Therefore, they should be brought down to a reasonable level. This is particularly true for spices, which are not produced domestically and shouldn't be subject to high duties. While tariffs can be justified to protect local industries producing import substitutes, excessively high tariffs on other goods are counterproductive."