NBR backtracks on VAT hikes for restaurant, internet, talk time, clothing, medicine
The government had announced the VAT will be increased to 15% for restaurants
Highlights
- Govt previously announced increasing VAT to 15%
- Restaurant owners and workers hold human chain in front of NBR
- NBR likely to issue notice reverting to 5% VAT within today
- VAT on various products and services being increased to fulfill the IMF's requirement of raising an additional Tk12,270 crore in revenue
Amid nationwide protests, the government plans to backtrack on its decision to increase value-added tax (VAT) and supplementary duty (SD) on eight products and services, such as mobile talk time, internet, clothing, restaurants, and medicine.
Officials from the National Board of Revenue (NBR) said they have received instructions from government high-ups to issue an order to this effect early next week.
While consumers have welcomed the move, they have called for the reversal of tax hikes on all 100 products and services that were increased on 9 January.
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Other items to benefit from the relief include non-air-conditioned hotels, sweetmeats, and motor garages.
In a separate development, the NBR has withdrawn all VAT on e-books at the import and supply stages to make them more accessible to readers, according to an order issued on Thursday.
However, the International Monetary Fund (IMF) expressed dissatisfaction with this move, warning that the rollback could lead to a revenue loss of over Tk1,000 crore, hindering the agency's revenue targets.
A senior NBR official, speaking on condition of anonymity, told The Business Standard, "The rollback followed government directives to consider public interest. The SD on mobile talk time and internet is likely to revert to 20%, down from 23%, while VAT on restaurants, medicine trading, and motor garages will return to 5%, 2.4%, and 10%, respectively."
The VAT hike on Internet Service Providers (ISPs) is expected to be scrapped, keeping the rate at zero. Additionally, the increased VAT on clothing, non-air-conditioned hotels, and sweetmeats has been reduced from 15% to 10%, down from the previous rate of 7.5%.
"The official order is expected by Sunday, as the finance adviser has already approved the changes," he added.
Restaurant owners and workers staged protests in Dhaka, forming a human chain demanding the withdrawal of the VAT hike. Similar protests were held earlier in the week by various business lobbies, with warnings of stricter actions if the demands were not met.
Sector insiders welcomed the rollback but urged the government to withdraw all recent tax hikes, citing high inflation over the past three years.
SM Nazer Hossain, vice-president of the Consumer Association of Bangladesh, emphasised that high inflation – averaging over 9% over the past two years – makes the tax hikes ill-timed.
"As traders, such as restaurant owners and medicine suppliers, emerged as strong pressure groups, the government was forced to reverse its decision. However, all recent tax hikes should be withdrawn, as the country is facing high inflation," he said. "Consumers lack a strong, united platform, which limits their ability to pressure the government."
Shahed Alam, head of Regulatory Affairs at Robi Axiata, one of the country's leading mobile service providers, told TBS, "We welcome the government's plan to roll back the SD hike on mobile talk time and internet services, as the increase would not have benefited revenue collection."
"Over the last few days, we have observed a decline in users purchasing talk time and mobile data. There is no justification for increasing SD on these services, as they are neither harmful nor luxurious," he added.
Meanwhile, several business groups, including the Bangladesh Agro-processors Association, Dhaka Chamber of Commerce and Industry, and Foreign Investors Chamber of Commerce and Industry, have expressed concerns over the tax hikes and called for their withdrawal.
IMF expresses dissatisfaction
An NBR official told TBS that an IMF team met with NBR officials on Thursday to express their dissatisfaction.
"The IMF assigned us an additional target of collecting Tk12,000 crore in revenue in the remaining six months of FY25. To achieve this, VAT and SD rates were reorganised. However, the new decision to reverse the hikes is expected to reduce our revenue estimate by about Tk1,000 crore," the official said.
"The IMF team expressed concerns that the revised decision may hinder achieving the revenue collection target," he added. "Now we are actually in a tough situation."
