VAT, SD hikes dampen sales

An abrupt hike in value-added tax (VAT) and supplementary duty on numerous goods and services has sent shockwaves through the economy, igniting widespread discontent among both consumers and businesses.

The hike, implemented in the middle of the fiscal year, has led to a significant surge in prices across various sectors. Fruits, vegetables, and other essential commodities have seen price increases ranging from Tk25 to Tk50 per kilogram. 

Restaurants, burdened by a tripling of VAT, have experienced a 15% decline in sales. Additionally, the prices of LPG cylinders, mobile phone services, cigarettes, and eyewear have all risen substantially.

Institutions that were already compliant, meaning those that had been adhering to VAT regulations from the outset, have started collecting the increased VAT. Branded clothing outlets have raised their prices. 

Consumers are also having to pay more for mobile phone talk time and internet usage. The retail price of all types of cigarettes has increased by Tk2 per stick. Cigarette sellers say that due to the price hike, customers are shifting towards lower-tier cigarettes to save on expenses.

By making such a decision, the government will effectively extract Tk12,720 crore directly from consumers' pockets. Business leaders are calling the decision suicidal. 

At a press conference held at the capital's National Press Club today (14 January), they urged the government to reconsider and withdraw the decision.

In the past, various organisations of Old Dhaka-based traders were vocal on VAT-related issues. They told TBS that they are closely monitoring the situation this time as well.

Amir Hossain Noorani, a leader of Old Dhaka-based traders, said, "Today, we presented our demands to the administrator of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI). We want to hand over the keys of our establishments to the National Board of Revenue (NBR) chairman. If traders are pushed against the wall, they will either shut down their businesses or take to the streets in protest."

Business leaders calling it 'suicidal'

In protest against the VAT and SD hike, a group of business leaders in the country described the government's decision as "suicidal" during a press conference at the National Press Club in the capital today. They urged the government to reconsider and withdraw this decision.

They made the demand under the banner of "The Anti-Discrimination Reform Council" of the Federation of Bangladesh Chambers of Commerce and Industries. 

In a written statement, the council Convener Zakir Hossain Nayan said, "The council demands that the government immediately withdraw this suicidal decision and bring peace to the people's lives. 

"This suicidal decision is against the spirit of the July Revolution.

"We, the business community, express deep concern over the increase in VAT and supplementary duty without consulting the stakeholders."

The Dhaka Chamber of Commerce and Industry (DCCI) has also referred to the decision to increase VAT as suicidal.

The Foreign Investors Chamber of Commerce and Industry (FICCI) has also protested the decision.

"The recent decision to hike VAT, SD, and other taxes is likely to impact consumers while significantly raising the cost of doing business in the country. This measure threatens the financial stability and operational capacity of businesses that generate crucial tax revenue and drive economic growth," the trade body said in a statement on 13 January. 

"The ultimate impact on the government will be a significant decrease in consumption, leading to a reduction in overall revenue. Hence, the strategy of increasing tax revenue through higher tax rates will likely be ineffective," the foreign investors' platform said.

Policies formulated without extensive study or stakeholder consultation can negatively impact investor confidence and deter future FDI inflows, said the FICCI.

Fresh hike in VAT and SD

Last June, VAT and SD were increased on several goods and services. Just seven months later, on 9 January, the interim government raised VAT and SD again on nearly 100 additional goods and services.

Since then, the prices of goods and services have started to rise. However, industry stakeholders say it will take some more time to fully understand the impact on certain goods and services.

Speaking with around 10 retail sellers in areas such as Kalyanpur, Karwan Bazar and Hatirpool in the capital revealed that the prices of apples, sweet oranges, oranges, and pears have increased by Tk25-30 per kilogram. The price of pomegranates has risen by Tk50 per kilogram. 

Sellers say low-income families generally avoid buying fruits unless absolutely necessary, and now, with the price hikes, middle-class families are also reducing their fruit purchases.

Hazrat Ali, a fruit seller at Kalyanpur, said, "Previously, I could buy fruits worth Tk1,000, but now the same amount costs Tk1,300. Just three days ago, I bought sweet oranges at Tk280 per kilogram, and now I have to pay Tk300."

Another seller at Kalyanpur, Saiful Islam Tawhid, said, "Our sales have dropped by 20% now. The wealthy don't face any issues buying these fruits, and the low-income groups don't buy them at all. Now, even the middle class has started reducing their fruit purchases."

Previously, a customer who would buy two types of fruits, two kilograms each, is now buying just one kilogram combined of two types of fruits, he said. "Some are even buying just one pomegranate or two or three oranges."

The government has increased the SD on fruit imports by 15%, raising it to 45%.

The VAT on eyewear frames and lenses has tripled, rising to 15%. However, the market price has increased by almost 30%. Enamul Kabir, an eyewear seller in the capital's Mouchak area, said, "A plastic frame that used to cost Tk100 is now at Tk130. The price of a metal frame that was Tk220 is now Tk250."

A small entrepreneurial company named Safe Trading in the capital's Uttara produces food and agricultural processed products. The owner of the company, Md Mostafa Kamal, said, "I need a 35-kg cylinder of gas every day. I used to buy it for Tk4,200, but now it costs Tk4,600."

He added, "Additionally, the prices of all raw materials will increase. When the prices of goods rise, our profit margins decrease because the purchasing power of the customers reduces."

He further said, "The government encourages us to become entrepreneurs, but how can we become entrepreneurs? It is already difficult for small entrepreneurs to get loans from banks, and the interest rates are the same as those for large companies. 

"Now, we have to take loans with interest rates of 15-16%. We are constantly thinking about how to keep the business afloat."

Restaurant owners threaten to close down businesses

Bangladesh Restaurant Owners Association Secretary General Imran Hasan said their sales have decreased by 10%-15% now. 

He said they will submit a memorandum to the NBR tomorrow requesting the withdrawal of the new VAT. "If our demand is not met, and the VAT rate is not reduced back to the previous 5%, we will keep all restaurants across the country closed for an indefinite period."

He said, "The price of gas has already increased, and the cost of raw materials we use has gone up, yet we can't raise the prices of our products considering the purchasing power of the customers. 

"On top of that, there's the added burden of the new VAT. And customers are unwilling to pay the VAT. Some large restaurants may manage with their customers, but this can't be applied to all across the country."

According to the 2021 survey by the Bangladesh Bureau of Statistics, the total number of hotels and restaurants in the country is 4,36,274.