A plethora of products and services, including medicines, talk-time and the internet, get costlier following a midyear amendment to the VAT law.
The amended Value-Added Tax (VAT) law brings a total of 43 products and services under a higher-tax regime.
An ordinance was issued Thursday to increase VAT rates.
This adjustment, occurring six months before the next national budget, has been implemented following the terms set by the International Monetary Fund (IMF) in a package of credit support to the government.
With these changes, the VAT at the trading stages of medicines will increase by 0.6 percent. And internet users will now have to pay a 10 percent Supplementary Duty (SD).
The threshold for VAT exemptions has been narrowed from Tk 5.0 million to Tk 3.0 million for the tax rises.
The import of various fresh fruits and fruit juices, including apples, oranges, grapes, melons, Asian apples, apricots, cherries, peaches, lemons, mangoes, betel nuts, pine nuts, areca nuts, and plastic frames of spectacles, is made much expensive.
Prices of unmanufactured tobacco, tobacco refuse, paints, varnishes, soap, and detergents will also increase. The SD at the supply stage of tobacco, paints, and fruit juices has been adjusted upwards.
Airfares, hotels, restaurants, and Internet Service Provider (ISP) services will also see a cost increase. The VAT on potato flakes, maize-corn starch, biscuits and pickles, among foodstuffs, has been raised as well.
Additional items affected by the increased VAT include transformer oil, lube-blending oil, LP gas, petroleum bitumen, limited driving licences from Bangladesh Road Transport Authority (BRTA), hard rock, ferro-manganese or ferro-silicon alloy, coils, GP sheet, GI wire, electrical transformers, mattresses, indenting businesses, kitchen towels, toilet tissues, napkin tissues, sunglasses, sweetmeats, branded clothing, procurement providers, electrical poles, motor garage workshops, dockyards, film studios, cinema halls, film producers, mending and servicing, sawmills, sports organizers, transport contractors (excluding petroleum goods), board-meeting participants, tailoring shops, and building, floor, or yard cleaners, as well as social or sports clubs.
Both the price slab and SD for cigarette companies have been raised. Additionally, excise duty on airfare has also been raised. A new 10-percent SD has been imposed on limestone and dolomite.
Talking to the Financial Express, a senior VAT official mentioned that the increase in VAT on medicines would generate a negligible amount of revenue, approximately Tk 1.0 billion. Most medicines categorized as lifesaving are exempt from VAT payment.
The National Board of Revenue (NBR) will need to collect an additional Tk 120 billion in revenue through the increased VAT and SD within the next six months to comply with the IMF conditions.
Naimul Huda, Executive Director, Finance and Accounts, of Incepta Pharmacuticals, finds the decision increasing VAT on medicine not favourable for both the industry and the patient.
"Raising the VAT rate will inevitably lead to higher medicine prices," he says.
Currently, chemist shops earn a 16-percent commission on the trade price of medicine, and a 15-percent VAT on this value addition (equivalent to Tk 2.4) is paid by the manufacturer at the production stage, he adds.
This has been the established practice, he says.
"If the VAT at the business stage is increased to Tk 3, the end- user would effectively be paying 18.75-percent VAT (16 x 18.75 per cent = 3) on business-stage value addition, which exceeds the legal limit of 15 per cent," he notes about the tax and their trade arithmetic.
Additionally, obtaining new price certificate for each medicinal product (around 40,000 brand items) from the DGDA is a time-consuming process that could take over six months, Mr Huda points out.
"We request the government to review and revert from this VAT- increase decision," the medicine-maker pleads.
With the latest ordinance, a VAT rate of 15 per cent will now apply to businesses with an annual turnover of Tk 5.0 million.
Previously, VAT was set at 4 per cent on businesses' annual sales (turnover) between Tk 5.0 million and Tk 30 million.
Furthermore, VAT registration, which was not mandatory for businesses with a turnover below Tk 5.0 million, will now be required for businesses with an annual turnover exceeding Tk 3.0 million.
Tanveer Mohammad, Chief Corporate Affairs Officer (CCAO), Grameenphone, said, "We are surprised by the sudden 3% increase in Supplementary Duty (SD) on mobile usage. At a time when the economy is still recovering and national inflation remains above 10%, this additional burden poses significant challenges for consumers already struggling with daily expenses.
"This is the second time in last seven months where the SD has been increased. It was increased by 5% in June 2024, and now again 3%, resulting in a 9.2% increase in indirect taxes on customers within just seven months.
"For every BDT 100 spent on mobile usage, customers will now have to pay BDT 142.45 (inclusive of VAT, SD, and SC), compared to BDT 133.25 before the last budget. As an industry committed to fostering digital inclusion, we believe this move will hinder progress and widen the digital divide. We urge the government to reconsider this decision in the interest of customers and for attaining the broader goal to build a digitally inclusive society."
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