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.”
Prime Minister Sheikh Hasina today (25 April) called for speaking out against all forms of aggression and atrocities, and say ‘no’ to wars.
“We must speak out against all forms of aggression and atrocities, and say ‘no’ to wars,” she said adding that Bangladesh supports the UN Secretary General’s ‘New Agenda for Peace.
The prime minister was addressing the 80th Session of the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) held at the ESCAP Hall (2nd floor), United Nations Conference Center (UNCC) here.
She arrived in Bangkok on Wednesday on a six-day official visit to Thailand.
The PM said the pre-condition for sustainable development is lasting peace and security.
“We must settle regional disputes and tension through dialogue. Our mutual respect for national sovereignty and territorial integrity must remain paramount,” she said.
Hasina called upon the Asia-Pacific region, especially ASEAN, to redouble their efforts to end Rohingya crisis as all efforts at regional connectivity, integration, and prosperity will continue to be marked by a missing puzzle without it.
“The origin of their crisis has been in Myanmar, and its solution also lies in Myanmar,” she declared.
“As long as that solution remains out of reach, all our efforts at regional connectivity, integration, and prosperity will continue to be marked by a missing puzzle. Let us redouble our efforts to put that puzzle back in place,” she said.
She said that in August 2017, when thousands of Rohingya men, women, and children from Myanmar fled to Bangladesh, Bangladesh offered them temporary shelter.
“With an ever growing population, this has now become one of the largest humanitarian situations in the world,” she said.
Sheikh Hasina said that In the backdrop of ongoing armed conflicts in Myanmar, the Rohingya repatriation process is also getting delayed.
“This is creating serious security risks within and beyond our territories,” she said.
She called upon the Asia-Pacific region, especially ASEAN, to play a proactive role in resolving the volatile situation in Myanmar.
“We must ensure that the Rohingya can go back home in safety and dignity at the earliest possible,” she said.
The prime minister said that the Asia-Pacific region must stand united against its common enemies of poverty and hunger.
She said Bangladesh has reduced poverty from 41.51 percent to 18.7 percent between 2006 and 2022.
It also reduced extreme poverty from 25.1 to 5.6 percent during the same period.
“We remain confident about eradicating extreme poverty by 2030,” she said.
She mentioned that Bangladesh has made notable progress on food security, with focused interventions on maternal and child nutrition.
“Our current priority is to address inequalities through income distribution, asset ownership, and social protection,” she said.
The prime minister said that Asia-Pacific region must put up a united front in tackling the climate crisis, biodiversity loss, and transboundary pollution.
“We need to push for ambitious climate financing goals beyond 2025 at COP-29. We need to cooperate on cross-border water management and air quality improvement. We must all prepare for growing extreme weather events,” she said.
In this connection, she suggested looking into Bangladesh’s experience in disaster risk reduction.
“We appreciate UN-ESCAP’s support in improving our early warning capabilities,” she added.
Briefly describing various development programmes and achievements of her govebrment, the prime minister said that much of the development gains are affected by climate impacts.
“As a low-lying delta, Bangladesh has no option but to invest heavily in climate resilience,” she said.
She mentioned that Bangladesh is already recognised as a global leader in climate adaptation.
“We are happy to share our traditional and innovative solutions with other vulnerable countries,” she said.
She said that Bangladesh has urged developed and emerging economies in the region to raise their time-bound emission reduction targets.
“For economies in transition, it is important to have a just energy transition.”
In Bangladesh, she said, “we are working on long-term energy security with a sound mix of clean and renewable energy.”
“We shall continue to do our part in pursuing a circular and low-carbon economic growth pathway.”
She underscored the need for increased and easy access to financing and technology from both the public and private sectors.
“I invite UN-ESCAP to help build the capacity of climate-vulnerable countries to mobilise adequate international climate financing.”
PM Hasina said that Bangladesh now provides critical links to the Trans-Asian Highway and Railway networks.
“Our physical and digital infrastructures are being developed to foster regional trade and connectivity.”
She said Bangladesh offers access to the Bay of Bengal for land-locked territories in its neighbourhood.
“We stand ready to work together with all regional partners through mutual understanding and cooperation,” said the prime minister.
Bangladesh and Qatar signed 10 cooperation documents on Tuesday, including five agreements and five MoUs, aimed at strengthening ties and elevating relations to new heights.
Prime Minister Sheikh Hasina and Qatar’s Emir Sheikh Tamim bin Hamad Al Thani witnessed the signing of the documents.
The five agreements cover cooperation in the legal field, promotion and protection of mutual investments, avoidance of double taxation, maritime transport, and the establishment of a Joint Business Council (JBC) between FBCCI & QCCI.
The five MoUs include cooperation in sports and youth, manpower employment (Labour), diplomatic training, education, higher education, scientific research, and between Qatar Ports management Company “MAWANI QATAR” and Chittagong Ports Authority.
Earlier in the morning, PM Hasina warmly welcomed and received Emir Sheikh Tamim at her office.
They had a tête-à-tête meeting at the Prime Minister’s Office, followed by a bilateral meeting.
After signing the visitors’ book, the emir headed for Bangabhaban where the president received him.
A high-level Qatari delegation led by Qatar’s emir is on a state visit to Bangladesh at the invitation of the president and the prime minister.
During the ceremony, a road and a park in Dhaka were named after Emir of Qatar Sheikh Tamim Bin Hamad Al Thani.
The park, constructed in Kalshi area of Mirpur under Dhaka North City Corporation, and the road from Mirpur ECB point to Kalsi Fly Over were named after Emir of Qatar.
Now, the road and park are known as Sheikh Tamim Bin Hamad Al Thani Avenue and Sheikh Tamim Bin Hamad Al Thani Park.
The Federation of Bangladesh Chambers of Commerce and Industries (FBCCI) is urging for greater involvement of marginal, small, and medium enterprises in international trade fairs. This initiative aims to spotlight Bangladesh’s promising products on the global market.
FBCCI President Mahbubul Alam made the call during the first meeting of the organisation’s Standing Committee on National and International Trade Fairs and Foreign Delegations. He emphasised the need to provide marginal, small, and medium enterprises with the space and resources to effectively display their products at these events.
“The participation of marginal, small, and medium enterprises is crucial at both national and international levels,” Mahbubul Alam said. “This will allow us to export Bangladesh’s promising products and open new markets.”
The FBCCI president informed that his organisation is actively discussing and collaborating with the government to make this a reality. He also proposed organising roadshows in neighbouring countries and Europe to revive the country’s handicraft industry and increase export opportunities for these products.
Standing Committee Chairman Nuruzzaman echoed Mahbubul Alam’s sentiments, highlighting Bangladesh’s vast potential and young population. “We need to move beyond the garment sector and focus on product diversification and market creation,” Nuruzzaman said.
Achieving this, he acknowledged, will require close collaboration with the Export Promotion Bureau, Ministry of Foreign Affairs, and Bangladesh Investment Development Authority.
FBCCI Senior Vice President Md Amin Helaly pledged the organisation’s support in facilitating increased exports through participation in foreign trade fairs. He stressed, however, the importance of raising awareness among Bangladeshis about the country’s diverse and promising products.
The meeting concluded with an open discussion where participants expressed keen interest in organising and participating in various sectoral fairs, both domestically and internationally, under the FBCCI’s umbrella.
