Sultrier summer? AC, refrigerator prices to heat up

Plans to beat the heat will suffer a setback as both AC and refrigerator prices are set to increase. 

Just six months after doubling the corporate tax on refrigerator and air-conditioner manufacturers, the government has raised the value-added tax (VAT) on these products, cranking up the pressure on consumers as the scorching summer intensifies and the economy remains under strain.

Refrigerators and air conditioners had been taxed at a reduced 7.5% VAT rate at the manufacturing stage, but now it will increase to 15%.

A senior NBR official, speaking on condition of anonymity, said the reduced VAT benefits for refrigerators, freezers, and air conditioners had been set to expire in June.

Since 2009, the government has offered VAT and tax exemptions to promote domestic industries. 

Until 2019, there was no VAT on refrigerator manufacturing, and VAT exemptions on component imports and local procurement still continue.

These incentives have helped transform Bangladesh's refrigerator market, which now sources nearly 95% of its units domestically.

Earlier in January this year, the corporate income tax on refrigerator, freezer, AC, and compressor companies was raised from 10% to 20%, although these companies were initially given reduced taxes until 2032 through a government order.

Several companies have since taken the issue to court, where the matter remains pending.

Speaking to The Business Standard earlier, Fair Group Chief Marketing Officer Mohammed Mesbah Uddin said, "Over the past three years, refrigerator sales have seen a decline, although air conditioner sales have grown by about 12%. Meanwhile, mobile phone sales are expected to drop by nearly 30% this year."

If VAT rates are raised now, it could worsen the situation, he said, adding that this could negatively affect both industries and the broader economy.

Once considered a luxury item, refrigerators have become a common household appliance, fuelled by increased electrification, growing purchasing power, and the availability of affordable locally-made units.

The refrigerator market is now valued at over Tk12,000 crore, with around 33-35 lakh units sold annually, growing steadily at around 10% per year. 

Local and foreign companies such as Walton, Jamuna Electronics, Vision Electronics (PRAN-RFL Group), and Singer Bangladesh dominate the market.

Meanwhile, air conditioner sales reached 6.2 lakh units in FY24, with a compound annual growth rate (CAGR) expected to be around 14%. 

Walton holds the largest share in the country's refrigerator market, though the company declined to comment on the potential VAT increase.