A recent proposal by the National Board of Revenue (NBR) to increase taxes on various goods and services, including air travel, cigarettes, LPG, restaurant food, and garments, has sparked protests from traders and industry leaders across Bangladesh.
With inflation already at 11 percent, these proposed tax hikes could exacerbate the economic strain on both businesses and consumers.
The government's plan is largely driven by a directive from the International Monetary Fund (IMF) to bolster revenue collection. However, the timing and impact of these measures raise significant concerns. Traders, particularly in the tourism and hospitality sectors, warn that these tax increases may undermine their fragile recovery after months of economic turmoil, driven by political unrest and inflation.
Small traders are especially vulnerable, already grappling with slow business, and fear that additional taxes could push them into further distress.
Among the most contentious proposals is the hike in VAT rates on restaurant bills, which would rise from 5 percent to 15 percent, along with similar increases for non-AC hotels. The hospitality industry, struggling to regain footing after months of stagnation, is already under pressure.
Higher VAT could discourage both domestic and international tourists, leading to even lower revenues and potentially worsening the sector's woes.
The proposal to increase excise duties on air travel also raises alarms, particularly for the airline and tourism industries. Higher ticket prices for domestic and SAARC-bound flights could reduce travel demand at a time when the aviation sector is still recovering from the pandemic. While the government estimates an additional Tk 300 crore in revenue from the excise duty increase, fewer travellers could ultimately negate the benefits of this revenue boost.
Another major concern is the increase in taxes on cigarettes, which the government argues will raise revenue while adhering to World Health Organization (WHO) guidelines. While public health benefits are clear, the timing of these increases raises questions. The government seeks to generate Tk 4,000 crore from the tobacco sector, but the broader economic consequences, especially for middle-income families, must be carefully considered.
What is most alarming is that these changes are being introduced midway through the fiscal year. This abrupt shift creates uncertainty for businesses that have already planned and budgeted for the year, undermining trust in the government's stability.
Balancing fiscal needs with the well-being of citizens is crucial. These proposed tax hikes may be necessary to meet IMF targets, but they must not unduly burden ordinary citizens or hinder economic growth.
A transparent dialogue with all stakeholders is essential to ensure sustainable solutions. Policymakers must reassess the broader economic landscape and prioritize measures that support long-term growth without further affecting struggling sectors of society.
