[🇧🇩] Monitoring Bangladesh's Economy

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Increase in VAT, move to gas price hike suicidal for economy: DCCI

Dhaka Chamber of Commerce and Industry president Taskeen Ahmed on Saturday said that increasing value added tax on more than hundred products, the rise in corporate tax for certain industries and...

www.newagebd.net

Increase in VAT, move to gas price hike suicidal for economy: DCCI
Staff Correspondent 12 January, 2025, 00:41

Dhaka Chamber of Commerce and Industry president Taskeen Ahmed on Saturday said that increasing value added tax on more than hundred products, the rise in corporate tax for certain industries and the plan to more than double the gas prices for industrial use would be suicidal for the economy.

At a press conference held at DCCI auditorium in the capital, he said that the country was facing significant economic challenges, including limited foreign exchange reserves, rising import costs, high energy prices, growing inflation, increased interest rates and limited access to credit.

‘Amidst global geo-political turmoil and the current challenges of the international and local economies, increasing VAT, rising tax on few industries and the initiative of increasing price of gas more than twice in the industry are catastrophic decisions for our business, trade and investment as well as for the overall economy,’ the DCCI president said.

He said that Bangladesh was on the right track for LDC graduation, but progress faced setbacks due to the Covid-19 pandemic, the Russia-Ukraine war, Middle East unrest, local political instability, geopolitical challenges and financial market instability.

‘Determining our preparedness in the current situation requires detailed discussions among public, private, and other stakeholders. If necessary, the government may consider deferring the graduation, taking into account the overall economy of the country and based on a collective national decision,’ DCCI president said.

If Bangladesh graduates in 2026, the government would need to ensure comprehensive cooperation with the private sector to help it overcome its challenges, the business leader mentioned.

Taskeen said that the country’s private sector had faced numerous challenges due to global geopolitical instability and its effects on both the international and local economies.

These included declining foreign exchange reserves, rising import costs, high energy prices, elevated inflation, increased interest rates, high tariff rates, rising VAT rates, and above all, a deteriorating law and order situation, he said.

This year the Dhaka Chamber will focus more on reducing interest rates, controlling inflation and keeping the foreign exchange rate stable, the business leader said.

He emphasised the need to expedite the flow of low-cost finance to the CMSME sector, highlighting it as the largest employment-generating sector in Bangladesh.

About the reform initiatives taken by the interim government, Taskeen expressed the expectation of the private sector that the government would complete the reform activities as per their set target soon.

He said that completing hundred economic zones by the year 2030 with all facilities was not an easy task.

‘Rather, if the government is able to ensure all required infrastructure and other facilities in the five economic zones, then domestic and foreign investors will be more optimistic and there will be a possibility of expanding investment activities,’ DCCI president said.

Regarding the continuation of the policy, he said that entrepreneurs had been encouraged to invest based on the assurance of a long-term supportive tax structure.

However, he cautioned that sudden decisions to increase taxes or duties midway would negatively impact entrepreneurs, which was highly undesirable.

Such measures could hinder both local and foreign investment, ultimately harming the economy, Taskeen said.

The DCCI president mentioned that Bangladesh’s tax-GDP ratio was very low, and the number of taxpayers in the country remained below expectations.

To address the budget deficit and ease economic pressure, he recommended that the government implement austerity measures in public spending.

Taskeen urged the government to avoid unnecessary projects and strengthen monitoring of the Annual Development Programme to ensure projects are completed on time.

DCCI senior vice-president Razeev H Chowdhury and vice-president Md Salem Sulaiman and members of the board of directors were also present on the occasion.​

 

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NBR's puzzling move and IMF loan strings

The move of the National Board of Revenue (NBR) to raise value-added tax (VAT) and supplementary duty (SD) on nearly 100 goods and services has evoked both surprise and anguish. Surprise, because the hike that has come halfway through the current financial year has all the potential to fuel inflat

thefinancialexpress.com.bd

NBR's puzzling move and IMF loan strings
Shamsul Huq Zahid
Published :
Jan 12, 2025 00:19
Updated :
Jan 12, 2025 00:19

The move of the National Board of Revenue (NBR) to raise value-added tax (VAT) and supplementary duty (SD) on nearly 100 goods and services has evoked both surprise and anguish.

Surprise, because the hike that has come halfway through the current financial year has all the potential to fuel inflation, which hovered between 10 per cent and 11.5 per cent in the preceding months. Though essential food items have been spared, the latest tax increase -- in many cases, the increase is nearly 200 per cent -- covering a number of food and non-food items will surely impact the overall price situation.

A case in point is the hike in VAT rate on medicines. NBR says the hike is negligible but, in reality, patients will have to pay more than what the Board estimates. Taxmen are aware of this arithmetic. People have been hard hit by an unabated rise in the prices of medicines for a long time, as the government is found to be reluctant to take up the price issues with pharmaceutical companies, for reasons best known to it.

What is most surprising is that the latest tax hike effectively dilutes the serious efforts of the central bank to rein in inflation. It, with a few exceptions, has stopped printing high-powered money that fuels inflation. Besides, it has hiked the policy rates several times, as part of its contractionary monetary policy.

Two key institutions of the government -- the Bangladesh Bank and the NBR, it seems, are not in sync and operating in opposing directions, as far as the task of reining in soaring inflation is concerned.

The central bank has been partially successful in stabilizing the country's reserves situation, thanks to increased exports and remittance earnings in recent months. Its efforts to contain inflation have not met with success up to the desired level.

The food inflation last month dropped a little, mainly because of the increased supply of vegetables and fish. Despite a notable fall in the prices of the two food items during the current month, it is hard to make any prediction about the price situation in the coming months, as the country's main staple -rice -- is becoming costlier even during the peak harvesting season. The men in authority blame the so-called syndicates or millers for the price rise but they do little to stop the malpractice. Such a failure pains the poor consumers. So, the nominal decline in food prices could be short-lived because of the possible supply crunch and the increase in VAT and SD.

The last week's hike in tax rates has aroused deep anguish among consumers, particularly those who belong to the lower to middle classes and poorer sections of society. These people are truly hard-hit. In fact, they are skipping or have cut down on food items the prices of which have gone beyond their reach. Also, many of them have put on hold their travel and leisure plans for the time being.

In such a situation, one question might be agitating the minds of many why has the interim government taken such an unpopular move of raising taxes right at this moment when people are unhappy with the price situation? The skyrocketing prices of most essentials had been one of the key reasons that had prompted low-income and poor people to take to the streets alongside the students. They expected some price relief under the non-political interim government. Unfortunately, their hope has been largely dashed, primarily due to the failure of the authorities concerned. The latter are clueless about the price increase. The reason/s they cite in their public statements, however, are not different from the honchos of the immediate past regime.

The latest NBR decision coupled with the proposal placed by Petrobangla to raise gas prices has also stirred up deep resentment among the businesses who feel that the move would further push up their cost of production and reduce the ability of the local exporters to compete in the international market. The economy has been stagnant for a considerable time. This is evident from the continuous slide in the private sector credit growth. Last week's tax measures are likely to intensify the crisis.

What, it seems, has prompted the NBR to go for such an unpopular move to raise VAT and SD on many items in the middle of the fiscal year is the compliance issue. The Board will have to collect a sum of Tk.120 billion in taxes over the amount to be mopped up normally by June 30 next, to meet the target set under the IMF's US$ 4.7 billion loan facilities approved earlier for Bangladesh. The NBR has been facing a serious shortfall in revenue earnings this fiscal. During the first five months of the fiscal year 2024-25, the deficit vis-à-vis the revenue target amounted to more than Tk. 420 billion. The revenue shortfall is feared to be bigger at the end of the year. So, it is very difficult to justify the NBR's move to collect an additional amount of Tk.120 billion by raising VAT and SD on a large number of goods and services. These are indirect taxes that are passed on to the consumers. The NBR should have mobilized more revenues, particularly through direct taxation, by raising its efficiency level.

Many see the IMF as an institution that maintains double standards. They complain that the Bretton Woods institution extends bailouts in crisis time to countries but causes enormous suffering to their poor consumers in return. At the policymakers' level, the multilateral lender is seen as a saviour, but some others have reservations about its role. The bailout often falls through.​