The government's recent decision to hike up Value-Added Tax (VAT) and Supplementary Duty (SD) on more than one hundred goods and services has taken flak from the public as well as the business community--- and for good reasons. Obviously, as part of its effort to increase revenue collection, the government has imposed this additional burden on the hapless consumers. To all appearances, the incumbent government is trying to make up for the shortfall in revenue earning from direct taxation by way of imposing VAT and special duties on the public who already have their back to the wall due to high inflation and erosion of income.
The flip side of the indirect tax like VAT is that it affects all sections of the taxpayers irrespective of their financial conditions. As a result, the low income people will be the real victims of the new round of tax imposed by the interim government, though the finance adviser tried to assure the public saying that new VAT would only affect less essential items. But then the question arises as to what is an essential item. Is it only rice, lentils and some other basic consumables that should be categorised as essential items? What about medicine, the VAT on which has been raised at the trading stage to 7.5 per cent from its earlier rate at 5.0 per cent? No doubt, it is ultimately the common consumers who will be affected as the pharmacies will shift the tax burden on the consumers by raising the prices of medicines.
Also, consider the use of mobile phones on which the NBR has raised the special duty (SD) to 23 per cent from 20 per cent. In total, the mobile phone users will now have to pay 42.45 per cent tax in terms of SD, VAT and surcharge in comparison with 39 per cent before. There is no reason to think that it is the better off who will bear the extra tax burden. In fact, mobile phones are not a luxury item as all sections of the people including the low income ones are now dependent on it for interpersonal communication. So, how can the revenue authority consider it as a less essential commodity and impose increased VAT and special duty on it? If increasing revenue collection is the goal, then the tax regulatory authority could well meet its yearly tax collection target as set annually in such a manner that it would not hurt the common consumers and businesses in general.
It is important to note at this point that business has meanwhile shrunk significantly due to high interest rate against bank credit. The trade bodies like the Dhaka Chamber of Commerce and Industry (DCCI), for instance, has termed the government move 'suicidal' for the economy as it will drive inflation further up and discourage foreign investment and trade. True, the government has gone for this unpopular move under IMF's pressure to amend the VAT and Supplementary Duty Act through an ordinance. But IMF's conditionalities are necessarily prompted by the perspective of a moneylender which are usually harsh and unpopular. The common people and their sufferings are not the concern of a moneylender. But the behaviour of moneylender is not expected from a government. The realities on the ground may not impact an unsympathetic hidebound moneylending institution. But some empathy could at least be expected from a government towards its citizens. In that case, the government should be able to negotiate with the multilateral lender to relax the conditions of the loan, which was sought by the fallen government. Given its huge popularity gained through August 5, 2024's revolutionary event, the present government should have been able to tackle the matter from a position of strength, not weakness as was the cases with the previous government. But far from doing that it appears to have completely surrendered to the will of the international moneylender. But without blindly following the dictates of IMF, the government could well think of some innovative ways to mobilise higher amount of revenue without punishing the common people and the business. For instance, it could have saved money of the state exchequer by way of cutting a lot of unnecessary expenditures such as on maintenance of a top-heavy administration. But Bangladesh government's administrative expenses are rather low at 13 per cent of the GDP, according to the finance ministry, it is way lower than, for instance, India's at 28.8 per cent, Vietnam's at 20.4 per cent or Malaysia's at 22.3 per cent. But given the fact that the economy at the moment is under severe stress due to mismanagement, massive corruption and systematic plunder of the state's financial resources by the previous despotic regime for over one and a half decades, the bureaucracy running the administration should be in a mood to make a little sacrifice for the nation by taking less from the government until the economy regained its stability and strength. To that end, the government would be well-advised to remove any redundancy in terms of manpower as well as cut extra expenditures in order to save cost. In the same way, the common people could well be spared the extra tax burden by bringing rich tax-dodgers under the tax net through stricter implementation of the tax rules. The tax officials, in particular, would have to be honest as well as efficient. Also, there are the holders of unearned or black money to take note of. To be frank, the black money holders have never been treated in a way they deserve. On the contrary, the successive past governments including the last deposed one had been found to be rather soft towards the owners of ill-gotten money as they would often try to induce them to whiten their money with various types of exemptions, though with little success.
The incumbent interim government should be able to tackle them in a way they deserve and not with kid-glove treatment that was the practice in the past in order to recover the money they held back illegally. The government need to think up more innovative ways to increase its revenue earning than just follow the oft-beaten track and burden the public with more taxes.
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