Economy
VAT pressure to increase in next FY raising inflation concerns
Despite the government’s initiative to formulate a contractionary budget in the upcoming fiscal year to control inflation, the finance ministry plans to generate around 51% more revenue from value added tax (VAT) and supplementary duties than the target of the revised budget of the current fiscal year, a measure stakeholders say could increase inflation, negating the government’s intention.
According to the finance ministry’s draft budget documents for FY25, the revenue collection target of the National Board of Revenue (NBR) is Tk4,76,500 crore including Tk2,40,000 crore from VAT and supplementary duties on goods and services.
According to stakeholders, VAT rates may increase in various sectors and be imposed in new sectors to collect additional revenue in FY25.
The National Bureau of Revenue (NBR) has already taken the initiative to impose VAT on metro rail ticket prices. Additionally, the concessions that the local industry has been enjoying on VAT may be reduced in the next financial year, they say.
Consequently, if the production cost of the product increases, the price of the product will also increase and that will be passed on to the consumer, they added.
Muhammad Abdul Mazid, former chairman of the NBR, told the news reporter, “Everyone knows that if VAT and supplementary duties increase, consumers inevitably bear the burden.”
The Consumer Association of Bangladesh (CAB) has expressed concern over the Finance Ministry’s plan to increase VAT amid the current high inflation in the country.
If VAT is increased again, it will be unbearable for low-income people, CAB officials told the news reporter.
The NBR set a revenue target of Tk2,24,540 crore in VAT and supplementary duties in the original budget for the current fiscal year. At the end of last January, the collection from this sector was Tk1,03,283 crore. In the revised budget, the target was fixed at Tk1,58,066 crore.
According to a finance ministry document, revenue collection from VAT and supplementary duty in the last financial year, 2022-23, amounted to Tk1,70,757 crore, compared to Tk1,58,181 crore in the previous financial year.
Meanwhile, the target revenue collection from taxes on income and profit in the budget for the next financial year is Tk1,75,000 crore. It was Tk1,53,260 crore in the original budget for the current financial year, which has been reduced to Tk1,45,865 crore in the revised budget.
On the other hand, the budget for the next fiscal year has set a target of revenue collection from customs duty at Tk54,500 crore, which is about 42% lower than the target in the revised budget of the current fiscal year.
Taming inflation could be challenging
The inflation rate is projected to be maintained at 6.5% in the next fiscal year’s budget. To achieve this, the government may focus on debt control, boosting domestic agricultural production, and expanding the coverage of social safety nets, stakeholders say.
Inflation was projected to remain at the same rate in the budget of the current financial year, however, it hovered at nearly 10% throughout the year.
Although inflation was targeted to be maintained at 7.5% in the revised budget of the current financial year, policymakers expressed doubts about achieving this target. The wariness was expressed by those present at the Fiscal Coordination Council meeting on Thursday chaired by Finance Minister Abul Hassan Mahmood Ali.
Economists are advocating for increasing income tax collection to mitigate income inequality, yet the target for this sector remains relatively unchanged. Around a 17% growth is estimated in taxes on income and profits compared to the revised budget target.
Officials from the CAB also said they have long been requesting the NBR to raise income tax.
“We have been demanding that the NBR should increase the income tax. But the NBR is not listening to us,” SM Nazer Hossain, vice president of the CAB, told the news reporter.
“People are already facing high inflation for the last two years, which has reduced their real income. In addition, the government has collected additional money as VAT on many daily essential products. If additional VAT is imposed now, it will be unbearable for low-income people,” he added.
IMF’s prescription
In line with the International Monetary Fund (IMF) target, the NBR aims to collect VAT of around Tk1,70,000 crore next year, which is Tk26,100 crore higher than the target for the current year.
The NBR has also submitted an outline to the agency regarding how this money will be collected. NBR sources said that the NBR sent a report on this to the IMF last week.
According to the report, “It is assumed that regular measures as taken by VAT offices may engender 11.6% revenue growth which will amount to Tk16,700 crore. Rest of the amount, that is, Tk9,400 core will be collected ‘taking additional’ measures.”
The VAT department hopes it may collect Tk7,500 crore in additional VAT, of which Tk3,450 crore will be collected by restructuring cigarette taxation. Proper implementation of the electronic fiscal device system in the trading stage is expected to generate an additional Tk950 crore from this sector.
The IMF has been suggesting reducing long-standing tax exemptions in Bangladesh.
According to the NBR, new taxes will be levied on certain sectors next year by removing or reducing exemptions. Along with this, an increase of Tk5,000 crore will be realised by reducing the compliance gap.
“We have already sent an outline to the IMF for the next financial year based on the VAT collection target given to us by the agency,” a senior official of the department concerned at the NBR told the news reporter on condition of anonymity.
Decline in imports and slow project implementation may impact revenue
In the report sent to the IMF, the NBR said that if the current trend of import slowdown continues and the government projects are slow in implementation, the target of additional revenue collection may not be achieved.
The NBR report reads, “About 40% of total VAT revenue comes from the manufacturing sector. VAT in the manufacturing sector is mostly dependent on imported raw materials whereas revenue from the trade sector is dependent on import of consumable items as well as production of goods. In this year, imports showed a negative trend which means if the trend continues revenue collection may slow down.”
“So stability in the import of raw materials and consumable items, lessening of the existing UDS crisis, adequate supply of fuel to continue production are the prerequisite for achieving projected revenue.”
The report also said, “VAT revenue collected against procurement by government projects and other agencies is about 10% of total vat revenue. This year this sector is expected to see a decline in revenue as many companies and the government have already curtailed their budget.”
Referring to the countrywide recent havoc and atrocities, Prime Minister Sheikh Hasina today said that she had an apprehension there might be a strike like this by the BNP-Jamaat clique to pull down the country’s prosperity.
“. . . they (BNP-Jamaat) had wanted not to hold the elections, but we had arranged the elections. After election they thought it wouldn’t be accepted by all, but we’ve also made it acceptable to all and we’ve formed the government. It was an apprehension to me that there would be a strike like this,” she said.
The Premier made this remarks while exchanging views with editors, senior journalists and head of news of various media outlets, organised by Editors’ Guild at her office (PMO).
She mentioned that before and after the election in 2013-14, the BNP-Jmaat clique unleashed arson attacks and killings that left hundreds of people killed and thousands injured.
“It was little bit understandable that this (the activities and movement of the students) was a grave conspiracy,” she said.
Sheikh Hasina said that she didn’t want any incident which might invite any unwanted situation that will invite instability in the country. “It was the target to destroy country’s economy,” she said.
She questioned about the understanding level of the people who supported these mayhem aiming to cripple the country’s advancement and prosperity.
Sheikh Hasina, also the chief of Awami League, said that vested quarter is highly interested to destroy country’s independence and the continuation of the democracy that is going on for long 15 years.
She again said that she never wanted to deploy army personnel in the field while the students were there for the sake of their security.
“While they (students) declared that they are not involved in the on going subversive activities then we called for army,” she said.
The premiers also said that she also didn’t want to impose curfew as the country is going through a democratic environment for 15 years.
She requested the people to resist those who have done this bane for the country. “They have destroyed all the structures have been built for their welfare and livelihood. They have struck all those structures. Who will be the worst sufferer? Of course, mass people. Now it is the responsibility of the mass people to resist these terrorism and militancy,” she said.
The premier called for creating mass awareness against the militancy that has opened in the destructive activities.”If the people don’t become aware then what could we do or how much we could do alone,” she said.
She also mentioned that the targets of the recent mayhem was Awami League, Freedom Fighters and pro-liberation forces.
The Prime Minister said that when all demands of the quota-free movement students were accepted why they gave scope to the militants for doing such heinous activities.
“One day the quota-free movement activists have to answer to the nation, why they gave such opportunity to them for this destruction to the country,” she said.
PM’s Press Secretary Md Nayeemul Islam Khan moderated the programme, while Editors’ Guild president Mozammel Huq Babu delivered welcome address.
Senior journalist Abed Khan, Bangladesh Pratidin editor Nayeem Nizam, DBC Editor-in-Chief and CEO Monzurul Islam, Bhorer Kagoj Editor and Jatiya Press Club general secretary Shyamol Dutta, Daily Jugantor Editor Saiful Alam, Jatiya Press Club president Farida Yasmin, Dhaka Journal chief editor Syed Istiaque Reza, Head of News Nagorik TV Dip Azad, Amader Somoy Editor Mainul Alam, Bangladesh Journal editor Shajahan Sarder, DBC news editor Zayedul Ahsan Pintu, Ashish Saikat of Independent TV, Bangla Tribune editor Zulfiquer Russell, head of News of 71 TV Shakil Ahmed, Energy and Power Editor Mollah Amzad, Head of News of Kings News Nazmul Huq Saikat and Mamunur Rahman Khan of RTV also spoke.
Britain’s inflation rate held steady in June after returning to the Bank of England’s target the previous month, official data showed Wednesday, confounding expectations for another modest slowdown.
The Consumer Prices Index was unchanged at 2.0 percent in June from the same level in May, the Office for National Statistics said in a statement, compared with market forecasts of 1.9 percent.
“Hotel prices rose strongly, while second-hand car costs fell but by less than this time last year,” said ONS chief executive Grant Fitzner.
“However, these were offset by falling clothing prices, with widespread sales driving down their cost.
“Meanwhile, the cost of both raw materials and goods leaving factories fell on the month, though factory gate prices remain above where they were a year ago.”
Analysts said the data could cause the Bank of England to sit tight for a while longer before starting to cut interest rates.
“The chances of an interest rate cut in August have diminished a bit more,” said Paul Dales, chief UK economist at research consultancy Capital Economics.
Last month, the BoE kept its key interest rate at a 16-year high of 5.25 percent, despite slowing inflation in May.
Britain’s newly elected Labour government welcomed news that inflation remained at the BoE’s target level.
“It is welcome that inflation is at target,” said Darren Jones, Chief Secretary to the Treasury, in a statement.
“But we know that for families across Britain prices remain high… (which) is why this government is taking the tough decisions now to fix the foundations” of the UK economy, he said.
Labour, led by new Prime Minister Keir Starmer, has pledged immediate action to grow the economy after the centre-left party won a landslide general election victory to end 14 years of Conservative rule.
Later on Wednesday, King Charles III will read out Labour’s first programme for government in a decade and a half, when the UK parliament formally reopens following the July 4 election.
Elevated interest rates have worsened a UK cost-of-living squeeze because they increase borrowing repayments, thereby cutting disposable incomes and crimping economic activity.
The BoE began a series of rate hikes in late 2021 to combat inflation, which rose after countries emerged from Covid lockdowns and accelerated after the invasion of Ukraine by key oil and gas producer Russia.
China’s economy grew 4.7 percent year-on-year in the second quarter of 2024, official data showed Monday, less than analysts had expected.
“By quarter, the GDP for the first quarter increased by 5.3 percent year on year and for the second quarter 4.7 percent,” Beijing’s National Bureau of Statistics (NBS) said in a statement.
The figures were much lower than the 5.1 percent predicted by analysts polled by Bloomberg.
Retail sales — a key gauge of consumption — also slowed to just two percent in June, the NBS said, down from 3.7 percent in May.
The world’s second-largest economy is grappling with a real estate debt crisis, weakening consumption, an ageing population and trade tensions with Western rivals.
Top officials are meeting in Beijing on Monday for a key plenum, with all eyes on how they might kickstart lacklustre growth.
