Call to cut VAT on essential foods to ease pressure on low-income groups

Highlights

• Over 60% of low-income earners are skipping breakfast
• 88% rely on bread or biscuits as a rice substitute
• 17% skip lunch
• 70% small retailers say sales of bread, biscuits declined since VAT hike
• VAT hike leading to product downsizing or price hikes
• Current VAT on bread and biscuits raised from 5% to 7.5%

A new survey has found that a significant portion of Bangladesh's low-income population is skipping meals due to rising food prices and indirect taxation, prompting renewed calls from stakeholders for reducing VAT on essential food items.

Over 60% of low-income earners, with monthly incomes between Tk10,000 and Tk15,000, are skipping breakfast, mainly due to rising food costs and time constraints, and 88% of this population regularly consume bread or biscuits as a substitute for rice, according to the study, conducted by the Youth Policy Network (YPN).

The study also stated that 17.03% of respondents reported skipping lunch.

The findings were presented today (26 June) at a seminar titled "Food Security and VAT for Marginalised Communities", jointly organised by the Economic Reporters Forum (ERF) and the YPN at the ERF office in Dhaka's Paltan.

"People are skipping breakfast mainly because of rising food prices," said Md Akbar Hossain, field coordinator of YPN, speaking to The Business Standard after the seminar.

The survey was based on responses from over 1,000 individuals across different parts of the country. 

Speakers at the seminar, including consumer representatives and stakeholders of the bread and biscuit manufacturing industry, urged the government to reduce the current VAT on essential packaged foods. 

They argued that the current tax regime poses a threat to food security for low-income groups, while also placing additional financial pressure on the poor, middle class, and students who depend on affordable essentials for daily sustenance.

Around 15% of survey participants believed the VAT rate on bread and biscuits was excessively high. The study also found that 70% of small retailers reported a drop in sales of packaged biscuits and bread following the VAT increase, attributing this to higher prices.

Currently, the government collects approximately Tk450 crore in annual revenue from VAT on these items.

KM Emrul Hasan, head of research of Youth Policy Network, pointed out that due to the recent increase in VAT for the next fiscal, either the size of products like biscuits and bread is shrinking or prices are rising – directly impacting low-income communities.

"Around 70% of people had hoped the upcoming budget would bring some positive changes to their standard of living. But the VAT increase has smashed those expectations," he said, urging the government to withdraw VAT from essential food items.

The recent national budget increased VAT on these items from 5% to 7.5%.

The seminar was chaired by ERF president Doulot Akter Mala, with National Board of Revenue (NBR) chairman Abdur Rahman Khan attending as chief guest.

Acknowledging the concerns raised by the survey, NBR Chairman Abdur Rahman Khan admitted the impact of the VAT hike but said the current government is unlikely to reduce the rate in the near term.

ERF General Secretary Abul Kashem moderated the programme, while KM Emrul Hasan, head of research at YPN, presented the findings.