Additional VAT to bite consumers at IMF pressure

Under pressure from the International Monetary Fund (IMF), the government is set to amend the Value Added Tax (VAT) and Supplementary Duty Act, potentially raising VAT and supplementary duties on 65 essential goods and services. 

Items like life-saving medicines, powdered milk, internet services, biscuits, and air tickets are likely to see price hikes, causing a financial strain on consumers.

The National Board of Revenue (NBR) has confirmed that the amendments were approved in principle at an Advisory Council meeting on Wednesday (January 1), pending legal vetting by the Parliamentary Affairs Division.

IMF influence and revenue target

The IMF has required Bangladesh to increase its tax-to-GDP ratio by 0.2%, translating to additional revenue of over Tk 12,000 crore. With revenue collection facing a 30,000 crore deficit in the first four months of the fiscal year, raising VAT is seen as essential to meet the revised Tk 4.8 lakh crore revenue target for 2024-25.

Proposed VAT increases

The draft ordinance suggests increasing VAT to 15% on various goods and services, including:

Life-saving medicines, powdered milk, LP gas, biscuits, pickles, and soaps

Dining at restaurants (previously taxed at 5% in air-conditioned restaurants)

Non-AC hotel services, sweets, and ready-made garments (current VAT of 7.5% may rise to 15%)

Driving license issuance by BRTA

Additionally, supplementary duties may rise on several products and services:

Fruit juice: From 20% to 30%

Tobacco: From 60% to 100%

Betel nut imports: From 30% to 45%

Mobile phone talk time

Air Travel Costs to Increase

The draft also proposes higher excise duties on air travel:

Domestic flights: From Tk 500 to Tk 700

SAARC countries: From Tk 500 to Tk 700

Other Asian destinations: From Tk 2,000 to Tk 2,500

Europe and the Americas: From Tk 3,000 to Tk 4,000

Implications for consumers

The increase in VAT on essential goods, including life-saving medicines and consumer items, is expected to fuel inflation and deepen public hardship. Critics warn that the mid-year tax hike could exacerbate economic challenges, especially for middle- and low-income households.

The NBR is likely to issue the ordinance soon, following legal formalities. Meanwhile, businesses and consumers brace for the ripple effects of these sweeping tax changes.