Tax-VAT pressure will be increased

Mahfuz Emran: The national budget for the next financial year is being announced on Thursday. To deal with the crisis in the economy, many changes are being made in the field of VAT and taxes to increase revenue in this budget. Tax exemptions will be lifted in some sectors to meet higher revenue targets to meet IMF loan conditions. In addition, tax exemptions are not available in some cases and are being reduced in some cases. There will be several steps to add new taxpayers or increase the tax net. In addition to increasing the VAT rate, the scope will be increased. These measures may put a large section of people under pressure from high inflation again.
Finance Minister Abul Hassan Mahmud Ali is going to present the budget for Tk 796,900 crore for the fiscal year 2024-25 in the National Parliament. For this, the revenue target is Tk 5 lakh 40 thousand crores. The remaining Tk 2 lakh 57 thousand crore will be the target of borrowing. Finance Minister’s budget speech is titled ‘Commitment to build a happy, prosperous, developed and smart Bangladesh’.
Talking to the officials of the Ministry of Finance and NBR involved in the preparation of the budget, it has been said that there is a requirement to increase the revenue of a certain amount in the next financial year from the side of the IMF. Tax collection in Bangladesh is currently less than 8 percent of the Gross Domestic Product (GDP). On January 30, 2023, while approving a $4.7 billion loan program, the IMF said Bangladesh would have to increase the tax-GDP ratio by 10.5 percent per year.
In order to raise revenue, the IMF has suggested expanding the scope of taxes, reforming tax administration and automating the collection process as well as reducing tax exemptions and duty-tax exemptions to zero within the next three fiscal years. In a report of NBR last November, it was also said that the amount of direct payments in the financial year 2020-21 was Tk 125,813 crores. ‘Direct duty’ means concessions, exemptions, exemptions, taxation at a reduced rate and exclusion of income from computation of total taxable income. This is the first time that NBR has adopted the strategy of at least additional Tk 15 thousand crore revenue by reducing tax exemptions and duty-tax exemptions in the next budget.
Tax exemptions may also be reduced in readymade garments, microcredit, remittances, poultry and fisheries. In the new budget, the government plans to increase the VAT rate from 5 percent to 15 percent on the production of mango bars and juice, tamarind juice, guava juice, pineapple juice, etc. In big cities including the capital Dhaka, security services have become almost essential in various sectors including homes, offices, business establishments. Now 10 percent value added tax (VAT) has to be paid for taking such security services. NBR is planning to increase it to 15 percent in the next budget.
In the new VAT law, 15 percent was considered as the ideal VAT rate, but implementation was not possible due to various reasons. For this, VAT is being collected at multiple rates. This rate will be rationalized in the next budget. In this case, NBR plans to increase the VAT rate on non-essential products. The government plans to impose a 15 percent VAT rate on all goods and services by 2026.
In order to increase non-tax revenue, the rental price of district, upazila, and even union level hatabazar will increase slightly in the next budget. Along with that, the land registration fee will also increase. The government is also thinking of increasing the amount of fines and penalties imposed by the government, including mobile courts. Apart from this, the tolls, service and administrative charges for crossing various bridges including flyovers, expressways may be increased.
Zero duty on more than 50 products
Over half a hundred products with zero duty may be levied import duty at the rate of 1 percent from the next financial year. Currently there are 329 products that have no duty on import. This list includes food products, fertilizers, gas, raw materials for pharmaceutical industry, agricultural materials etc. The products that are being considered for 1 percent import duty include – wheat, maize, mustard seeds, cotton seeds, various vegetable seeds, coal, gypsum, vitamins, penicillin, insulin, various chemicals, plastic coils, paper board, steel National products, industrial raw materials, machinery parts etc. As a result of the imposition of tariffs, people may have to spend more on these products than at present.
AC and refrigerator to be costlier
The government has been exempting the country’s electronics sector from VAT for several years. There is VAT exemption on AC production till June 30. 5 percent VAT may be levied in the new financial year without extending its period. The rate of VAT on the manufacture of refrigerators may be increased from the existing 5 percent to 10 percent. VAT may also increase on products like LED bulbs, tube lights, liquefied petroleum (LP) gas cylinders. The entrepreneurs of these sectors said that as a result of this, their operating expenses will increase. In times of high inflation, the burden of additional costs will fall on consumers.
Hospital equipment to be costlier
Importation of medical devices and equipment is allowed at 1 percent duty on referral or specialized hospital duty free facility subject to compliance of certain conditions. In the next budget, the import of more than 200 medical devices and equipment may be increased to 10 percent, which may further increase the medical expenses of critically ill patients.
A hospital has to fulfill certain conditions to become a referral or specialty hospital. The conditions set by the government include – Must be mono-disciplinary with minimum 100 beds or multi-disciplinary with minimum 150 beds. Ensure high quality medical care for patients by meeting international standards. It should also have the ability to conduct research activities. Major referral hospitals in the country include – Bardem, National Heart Foundation, Apollo Hospitals, Zainul Haque Sikder Women Medical College & Hospital, Khawaja Yunus Ali Medical College, Ibrahim Iqbal Memorial Hospital, Jalalabad Rajib-Rabeya Medical, United Hospital, Square Hospital, Salahuddin Specialty Hospital, Ad-Deen Medical College Hospital, Delta Hospital and LabAid Specialty Hospital.
Tax-free income limit will not increase
The tax-free income limit is not increased in the new budget despite rising inflation due to the urge to increase revenue. On the other hand, there are measures to collect additional tax from the rich. Currently, if the annual income is more than 16.5 lakhs, the tax rate is 25 percent. In the next budget, the tax rate is kept at 25 percent for income up to Tk 38.5 lakh. But in case of higher income, it is being increased to 30 percent. Apart from this, there may be a decision to impose ‘Capital Gain’ tax on profits of more than Tk 40 lakh by investing in the capital market. This rate can be 15 percent. Community center rent and some other services may require filing of return deposit certificate to increase tax coverage.
Cost of using mobile phones will increase
An additional 5 percent supplementary duty may be announced for talking on mobile phones or using the Internet. The tax on the sale of SIM cards by mobile operators may be increased from Tk 200 to Tk 300. At present, 7.5 percent VAT is charged on entry and rides in amusement parks and theme parks. There are plans to increase it to 15 percent. VAT on soft drinks, carbonated beverages, energy drinks, amsattya may be increased from 5 percent to 10 percent. Apart from this, the minimum tax on carbonated beverages may be increased by another 2 percent to 5 percent. Supplementary duty on cigarettes may rise.
Experts say
Former Finance Secretary Mahbub Ahmed told that one of the reasons for the country’s low tax-GDP ratio is duty-tax exemptions and exemptions. For a long time, there have been tax exemptions in some areas, which have not had a positive impact on the economy. Along with other revenue generating initiatives, tax deductions must be reduced in these cases on the basis of rationality. Because there is no alternative to increase the revenue to increase the economic capacity of the country. However, in the current economic situation, in this case, the exemption should be continued in these places involving the public including daily consumer goods, communication. Even in this time of high inflation, subsidies should be increased in these areas to provide relief to the needy people.
Snehashish Barua, partner of tax expert Snehashish Mahmood & Co., told that the tax exemption should be phased out, it is right. However, due to high inflation for a long time, there is currently pressure on the macroeconomics. Therefore, the potential impact on the economy should be taken into consideration while giving away the tax exemption. At the same time steps should be taken to reduce the effective tax rate by rationalizing the tax rate at source and reducing the list of non-allowable expenses.