During the previous government, the donor agency, the International Monetary Fund (IMF), made a loan agreement of $4.7 billion. At that time, the donor agency stipulated that Bangladesh would have to reduce the risks in its banking sector and formulate a realistic tax policy by the 2024-25 fiscal year to increase the tax-GDP ratio by 0.5 percent by increasing revenue. The outgoing Awami League government failed to meet that condition.
The current interim government is also unable to meet that condition. Therefore, the government was forced to increase the tax-GDP ratio this time. And the life of the common people of the country has become more difficult by falling into this IMF trap. Because most of the products on which the tax has been increased are close to the lives of the common people and the price of each product will increase excessively. This will increase their suffering.
It is known that in July last year, the fugitive Awami League government sought a loan of $4.5 billion from the IMF to deal with the negative effects of the global recession. But on January 30, 2023, the IMF board approved $4.7 billion, which is $200 million more than requested. The IMF Executive Board meeting held in Washington on that day approved the proposal in this regard. At the same time, the organization strongly urged to prioritize reducing risks in the banking sector and to increase the tax-GDP ratio by 0.5 percent by formulating a realistic tax policy by increasing revenue by the 2025 fiscal year. Economists believe that just as the outgoing Awami League government fell into the trap of the IMF and decided economic policies without thinking about the people of the country, similarly, the current interim government has made the lives of the common people of the country difficult by increasing customs duties on more than a hundred products as per the IMF’s advice. In this regard, economist Professor Anu Mohammad told Daily Industry, “It was a very irresponsible act of the government to increase customs duties on more than a hundred products at once. I think it is not only irresponsible, but also a big mistake of the government. The government needed to understand in (See Page-2)
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advance how much its negative impact will be on society, on the economy, and on the lives of the common people.” The government did not think about whether the people of the country could bear the pressure of increasing customs duties on so many goods and services at once. It was the government’s responsibility to think about the matter. Why should we listen to the IMF if it says so or if they put pressure on us? It was also necessary to think about what is good for the people of the country, what is not good, what will be harmful, what will be beneficial. He also said that the loan given by the IMF is not a very big figure. Our expatriates send the same amount of money that the IMF gives in three years to the country in two months. Therefore, the government is not obliged to accept all the conditions imposed by that donor organization. It was not at all reasonable for the government to increase the tax-GDP ratio in this way. By doing this, the government has put the burden of taxes on the shoulders of the people. This shows that the current interim government is not making any effort to change the economic policies of the previous government that endangered the lives of the people of the country. Instead of trying, the government is making the lives of the common people of the country more difficult by increasing taxes as before, or even a step further.
Last Thursday night, the interim government issued two ordinances to increase duties and taxes on the purchase of hundreds of goods and services. The National Board of Revenue (NBR) issued instructions in this regard immediately after the ordinance to increase duties, taxes and VAT on goods and services was issued; it has become effective immediately.
VAT and duties have been increased on products such as biscuits, medicines, clothing purchases, sweets, several types of tissues, motor vehicle garages, and LP gas. Another round of price and tax increases have been made on cigarettes. Supplementary duty on mobile phone SIM cards has been increased from 20 to 23 percent. For the first time, a 10 percent supplementary duty has been imposed on internet services or ISPs.
In addition, the existing VAT on the sale of goods and services in kitchen towels, toilet tissues, napkin tissues, facial tissues, hand towels, sunglasses, non-AC hotels, confectionery stores, corporate purchases, and ready-made clothing showrooms or markets with their own brands has been increased to 15 percent. So far, it was 7.5 percent.
The VAT on services provided by electric poles, motor vehicle garages and workshops, dock yards, printing presses, film studios, film exhibitions (cinema halls), film distributors, repair and servicing, automatic or mechanized sawmills, sports organizers, transport contractors, suppliers of products for board meetings, tailoring shops and tailors, building maintenance organizations, and social and sports clubs has been increased from 10 to 15 percent.
The ordinance has increased the supplementary duty on imported betel nuts from 30 to 45 percent, pine nuts from 20 to 30 percent, fresh or dried betel nuts from 30 to 45 percent, mangoes, oranges, citrus fruits, grapes, lemons, papaya, watermelon, apples and pears, fruit juices, vegetable juices, tobacco, nuts, paints, polymers, varnishes and lacquers, soaps and soap-like products, detergents, fruit drinks, artificial or flavored drinks and electrolyte drinks (carbonated and non-carbonated), and cigarettes containing tobacco from 5 to 15 percent.
VAT has also been increased at the business level. VAT has been increased from 5 to 7.5 percent at the local business level, and from 2.4 to 3 percent at the local business level for medicines. However, the 2 percent VAT at the local business level for LP gas has been canceled. In addition, both the price and duty have been increased at four levels of cigarettes.
On the other hand, turnover tax will have to be paid only if the annual turnover of a business establishment is Tk 3 million to Tk 5 million. Currently, tax is payable on turnover of Tk 5 million to Tk 30million. According to the new provision, VAT will have to be paid at the rate of 15 percent on the purchase of goods and services if the annual turnover exceeds Tk 5 million.
The price of airline tickets may also increase. According to the ordinance, excise duty is payable at the rate of Tk 500 on domestic routes and air tickets to SAARC countries. It has been increased from Tk 200 to Tk 700 and doubled from the current Tk 1000 in SAARC countries. In addition, it has been increased from Tk2000 to Tk2500 in Asian countries and from TkTk3000 to Tk4000 in European countries.
Increasing customs duty like this is not a good idea: Professor Mostafizur Rahman, Honorary Fellow of the Center for Policy Dialogue (CPD), a research institute, told the Times of India that increasing customs duty on so many products at once will make life more difficult for the common man. It will not only affect the very low-income people, but it will also put pressure on lower-middle-class and middle-class families. The government increased customs duty at a time when the people of the country have been struggling for the last two years due to high inflation.
If the government had increased taxes by emphasizing direct taxes, it would have been better in terms of fairness. The burden of indirect taxes would fall more on the common man. Those who eat in restaurants and run ACs at home are middle-class families. Moreover, the duty on many widely used products like tissues, glasses, sweets, mobile bills, and clothes has also been increased. This will also affect people of all classes and professions.
However, the government did not increase customs duty like this with a happy heart. The donor agency IMF is putting a lot of pressure on the government to increase the tax-GDP ratio. They are putting a lot of pressure on the government to increase domestic revenue collection. The NBR is far behind the revenue collection target for the first five months of the fiscal year. Revenue collection has been disrupted due to the protests in July-August. The time for IMF disbursement is coming. The government’s argument is that if the people of the country accept this current hardship for the IMF disbursement, then if they get the disbursement and budgetary support from the IMF, the reserves will increase, import capacity will increase and inflation will also be reduced later. Therefore, after overcoming the short-term difficulties, the people of the country will enjoy medium and long-term benefits.
He also said that at present, the common people are having a hard time just running their families due to high inflation. Increasing customs duty on hundreds of products in this way will further increase the pressure on people’s lives. Because on the one hand, expenses are increasing, on the other hand, income is not increasing. Investment has come to a standstill, new employment is also stagnant.
Now the question is - did the government have no other choice? In fact, the IMF has set a condition that the tax-GDP ratio should be increased by 5 percentage points. The government could not fulfill this condition even before. This is mainly why the government was forced to increase taxes. However, in this case, the government could have emphasized more on how to increase direct taxes. It was not right to increase indirect taxes in this way by reducing the fairness of the common people. At the same time, it was not a good idea to increase taxes in this way by creating problems in distribution and increasing inequality.