Sunday | 12 January 2025 | Reg No- 06
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Sunday | 12 January 2025 | Epaper
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Consumers brace to face hardship after VAT and duty spike

Published : Sunday, 12 January, 2025 at 12:00 AM  Count : 111
Motaher Hossain
The general populace in Bangladesh is enduring a multi-faceted crisis marked by shrinking employment opportunities, skyrocketing prices of essentials, persistent inflation, and deteriorating law and order. The lower-middle-class segment is particularly bearing the brunt of these challenges. While the interim government, led by Nobel laureate economist Dr. Muhammad Yunus, is making continuous efforts to address public grievances, the results have not yet been tangible.

Previously, to keep commodity prices within reach, the government reduced tariffs on essential goods such as edible oil, onions, and rice. Agencies like the Trading Corporation of Bangladesh (TCB), BADC, and the Food Department facilitated the sale of vegetables, eggs, lentils, rice, and flour at reduced prices. However, these initiatives have been discontinued.

In October last year, TCB initiated a program to sell subsidized edible oil, lentils, and rice through trucks, enabling around 24,500 people in Dhaka and Chattogram to purchase these goods daily without a family card. Similarly, the Department of Agricultural Marketing launched a subsidized sale of agricultural products, but this program has also been halted. Moreover, about 43 lakh family cards out of TCB's 1 crore family cards were canceled due to irregularities.

The VAT increase stems from the need to meet International Monetary Fund (IMF) conditions. As part of its $4.7 billion loan program, the IMF mandated raising the tax-to-GDP ratio by 0.2 percentage points, amounting to an additional Tk 12,000 crore in revenue for the current fiscal year.

To alleviate inflationary pressure, the cash-strapped government printed an additional Tk 22,500 crore to support struggling banks. Law enforcement agencies have also been deployed to ensure public safety. However, the desired benefits of these measures have not reached the masses. Economists argue that the funds often fail to serve the people effectively. On the law-and-order front, the police force has been accused of taking a passive stance, undermining public trust and exacerbating security concerns.

Against this backdrop, the government has recently decided to increase VAT (Value Added Tax) on 100 goods and services, raising concerns among economists and triggering adverse reactions from the general public. The new VAT rates have led to apprehensions about further inflation and increased living costs, especially for lower-income and middle-class households.

The list of items subject to VAT hikes includes essential goods and services such as life-saving medicines, LPG, powdered milk, biscuits, juice, fruits, clothing, tissue paper, soap, detergent powder, restaurant meals, and air travel tickets. Naturally, these increases will further strain household budgets.

The National Board of Revenue (NBR) argues that the VAT hike will not affect prices of essential goods. However, economists contend that the actual market impact of such measures often benefits importers and traders, rather than consumers. Previous tariff reductions on essential commodities, such as edible oil and sugar, did not lower market prices, as the benefits were allegedly pocketed by business syndicates.

The VAT increase stems from the need to meet International Monetary Fund (IMF) conditions. As part of its $4.7 billion loan program, the IMF mandated raising the tax-to-GDP ratio by 0.2 percentage points, amounting to an additional Tk 12,000 crore in revenue for the current fiscal year. Consequently, the government approved the hike in VAT rates on several goods and services.

In response to the VAT increase, prices in the affected categories are expected to rise, disproportionately impacting lower-income households. While the government has justified the VAT hikes as essential for revenue collection and economic sustainability, critics argue that it fails to account for the current economic reality and the declining purchasing power of ordinary citizens.

Reduced spending on food is already leading to malnutrition, weakening people's immunity. Economists and social activists have urged the government to reconsider its approach and prioritize controlling prices and ensuring adequate supply in the market. They also recommend reinstating programs like TCB's subsidized sales and expanding the family rationing system to provide immediate relief.

A free-market economy often challenges government control over market prices, but proactive measures can help mitigate the situation. Strengthening oversight, dismantling syndicates, and ensuring adequate supply in the market are crucial steps to stabilize prices. Alongside VAT adjustments, robust programs like TCB operations, OMS (Open Market Sales), and targeted subsidies for essential goods can alleviate public hardship and rebuild trust in governance.

The writer is a journalist and General Secretary, Bangladesh Climate Change Journalist Forum




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