The Foreign Investors' Chamber of Commerce and Industry (FICCI) has expressed concern over the increase in VAT and Supplementary Duty (SD) on various products without prior consultation with respective stakeholders.
The hike in VAT, SD, and other taxes will not only burden consumers but also substantially raise the cost of doing business in Bangladesh, said a statement issued on Monday by the trade body that represents foreign investors in Bangladesh.
It urged the government to reconsider and reevaluate these tax reforms.
Such measures could jeopardise the financial stability and operational capacity of businesses that are pivotal in generating revenue and fostering economic growth, it said.
FICCI member organisations that represent vital sectors like tobacco, telecommunications, energy, and financial institutions account for around 90 per cent of Bangladesh's total FDI and collectively contribute about 30 per cent of the country's internal revenue.
A significant source of concern for the FICCI lies in the increased VAT rates under non-recoverable conditions. For procurement providers, the VAT rate has risen from 7.5 per cent to 15 per cent, with no input VAT recoverability.
Similarly, VAT on repairs and maintenance has increased from 10 per cent to 15 per cent, also under non-recoverable conditions. Transport contractors are now subjected to a VAT hike from 10 per cent to 15 per cent with only 20 per cent input VAT recoverable.
Restaurants face an even more dramatic increase, with VAT rising from 5.0 per cent to 15 per cent, coupled with 100 per cent input VAT non-recoverable.
Consumers are also expected to bear the brunt of these changes. The increase in VAT from 5.0 per cent to 7.5 per cent on retail purchases is projected to raise prices by 2.5 per cent, further squeezing household budgets.
The FICCI cautioned that these developments might lead to reduced consumption, ultimately undermining the government's objective of boosting revenue through higher tax rates.
In light of these challenges, the FICCI expressed disappointment over the lack of consultation with stakeholders concerned before implementing such impactful policy changes.
The chamber noted that this approach deviates from the collaborative tradition it has shared with the government in formulating rational and sustainable fiscal policies that support long-term economic goals.
It argued that policies developed without thorough analysis or stakeholders' engagement could harm investor confidence and deter future FDI inflows, raising concerns about the stability and predictability of Bangladesh's business environment.
The trade body emphasised the importance of transparent and constructive engagement with the business community, which would allow for meaningful discussions about the implications of such changes.
It noted that collaboration is crucial for designing policies that strike a balance between economic growth and fiscal responsibility, ensuring Bangladesh remains an appealing destination for investment and innovation.
The chamber urged the government to focus on helping industries increase sales revenue, as this would naturally lead to higher tax revenue.
It also advocated for adherence to the fundamental principles of VAT law, arguing that a single VAT rate, where 100 per cent input VAT is recoverable, would minimise the impact of higher rates.
Simplifying the input credit mechanism, as practiced in other countries, would enable small and medium enterprises and retailers to claim input tax credits on their purchases without requiring complex price declarations or maintaining cumbersome VAT records.
Additionally, the FICCI recommended leveraging simplified digitisation to track monetary transactions more effectively.
Reaffirming its commitment to supporting the national economy, the foreign investors pledged to work alongside the government to create a sustainable and conducive business environment where industries can thrive and contribute to Bangladesh's economic progress.
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