The National Board of Revenue has planned to increase the rates of value added tax and supplementary duties on about four dozens of products and services in the upcoming financial year.
Finance ministry officials said that plans had been readied to raise the tax at the source on products like rice, wheat, edible oils, potato, onions, garlic, fish, meat, sugar, and tea by up to 1 per cent from the previous 0.5 per cent and the advance income tax on battery-powered rickshaws, high cylinder-capacity motorcycles and cars.
Besides, the increase to 15 per cent VAT on the commission of online marketing agents from 5 per cent and the plastic products from 7.5 per cent while raising to 10 per cent VAT in the construction sector from 7.5 per cent have been aimed at generating greater revenues in the FY27, they said.
While the generation of greater revenues is an imperative for the newly elected government led by the Bangladesh Nationalist Party to afford higher public expenditures for a quick economic recovery, economists cautioned that the planned greater revenue mobilisation should not burden the majority people.
Majority people have been in distress over the past three years because of a double-digit inflation on the back of mismanagement by the past political regime, the Awami League government, before being ousted on August 2024.
‘They want relief in the new financial year,’ said Bangladesh Institute of Development Studies director general AK Enamul Haque.
The realisation of tax and VAT should be made in a way convenient to all ahead of the announcement of the new budget, further said the BIDS DG.
The first budget of the BNP’s current five-year tenure is going to have an ambitious revenue target for the NBR at Tk 6.04 lakh crore, over 20 per cent higher than the revised revenue target of Tk 5.0 lakh crore in the outgoing financial year.
It has been planned to mobilse about Tk 3.10 lakh crore or approximately 51.3 per cent from VAT and about Tk 67,000 crore from customs duties, both indirect taxes.
The International Monetary Fund has been pressing the government to bring the service sector under a 15 per cent VAT net.
More earnings from indirect taxes mean burdening the poor and favouring the rich, said Mustafa K Mujeri, executive director of the research organisation Institute for Inclusive Finance and Development.
‘It also widens income inequality,’ said the economist while pointing out the Gini coefficient of 0.4999 in 2022, 0.482 in 2016, and 0.458 in 2010.
A smaller Gini value indicates a less unequal distribution of the national wealth.
NBR officials also said that they wanted to intensify longstanding VAT reform from the new financial year to increase the number of registered VAT payers -- now standing at only eight lakh.
In the country, an annual turnover above Tk 50 lakh by a business requires it a mandatory registration.
NBR chairman Abdur Rahman Khan said that they would start the process from the new budget to increase the number to one crore over the next four years.
Besides, automation will be strengthened to check VAT evasion, added the chairman.
In April 2024, the World Bank in its ‘Bangladesh Development Update Special Focus: Strengthening Domestic Resource Mobilisation’ mentioned that VAT had been one of the major sources of revenue.
‘But a VAT gap analysis shows that there is potential to collect over three times more VAT if there were no policy and compliance gaps,’ observed the WB.
The lower-than-expected performance by the tax administration, the losses of revenue to corruption, and tax breaks have been blamed for the falling tax-to-GDP ratio to below 7 per cent in 2024 from 9.2 per cent in 2011.
Former World Bank Dhaka office lead economist Zahid Hussain said that the tax-GDP ratio fell sharply over the past decade as the revenue generation could not keep pace with the average economic growth of 6 per cent due to corrupt tax officials.
The slow transition to direct revenue amid a lack of strong political will enabled NBR officials to renew the reliance on indirect tax every passing year, he added.
The burden of VAT represents 12.1 per cent of the income of the poor against 5.9 per cent for the rich, according to a study report released on July, 2021 by the Campaign for Good Governance with support of Oxfam Bangladesh.
The poor have little or no idea that they have to pay tax every day as VAT is included in the prices of mobile phone use, medicine, gas, electricity, and other essential goods and services, added the report.
