VAT, SD hike ‘suicidal’ for economy

The decision to hike value-added tax (VAT), corporate tax and supplementary duty (SD) midway through the fiscal year would be 'suicidal' for the economy amid an ongoing economic slowdown, said the Dhaka Chamber of Commerce and Industry yesterday.

"This decision will fuel inflation and adversely impact the general public -- we do not support this move," said Taskeen Ahmed, the newly elected president of the DCCI, at a press briefing at the chamber's office in Motijheel.

The government did not hold any discussion with the stakeholders before taking any of the contentious decisions.

"It would be a suicidal step for the economy given the wide-ranging economic implications."

Bangladesh is currently going through a critical moment and economic challenges mainly due to limited foreign exchange reserves, rising import costs, high energy costs, elevated inflation, high interest rates along with low access to credit.

Increasing VAT on more than 100 products, raising the income tax on a few industries and planned doubling of gas price tariff for industrials and captive users is a "catastrophic decision for our business, trade and investment as well as for the overall economy", Ahmed said.

"We have already shared our official reaction. We will meet with government officials, including the governor and the commerce secretary, to convey our concerns."

To meet the budget deficit and lessen the pressure on the economy, he suggested the government to take austerity measures in government expenditures.

At the same time, he also urged the government not to take unnecessary projects and to heighten monitoring so that the projects under the annual development programme are completed on time.

He urged the government to cut unnecessary expenditures instead of burdening businesses.

"A 20 percent reduction in government spending could save at least Tk 50,000 crore, which could then be used to meet budgetary needs."

Ahmed also criticised the recent announcement of the doubling of the corporate income tax rate to 20 percent for manufacturers of freezers, refrigerators, motorcycles, air conditioners and compressors in the middle of the fiscal year.

"This will not only put the businessmen in danger but also tarnish the image of the country."

Policy continuity is important for entrepreneurs, said Ahmed, also a vice-chairman of IFAD Group.

"Entrepreneurs are encouraged to invest subject to obtaining a long-term supportive tax structure. So a sudden decision to increase tax or duties in the middle of the year is not desirable at all."

Subsequently, both local and foreign investment may be hindered.

"This will not bring any good for the economy," he said, adding that the price of motorcycles may increase by 10-15 percent in the next three months due to the sudden increase in corporate income tax.

In a separate event, the Jatiya Nagorik Committee also demanded immediate withdrawal of the ordinance issued by the interim government to hike VAT and SD on nearly a hundred goods and services.

"This move will increase inflation and business costs, affecting the quality of life of ordinary people. While it is a normal process for the government to expand its revenue base, it must ensure that the living standards of ordinary people do not dip and their sufferings do not aggravate further," Akhtar Hossain, the platform's member secretary.

Hossain said the country's economy has become fragile, and foreign exchange reserves are at their lowest due to rampant corruption and money laundering by the previous illegitimate government.

"Against that backdrop, the previous government had decided to take a $4.7 billion loan from the International Monetary Fund. For any country, an IMF loan is considered the last resort. As part of the stringent loan conditions, the interim government recently issued these ordinances to increase VAT in phases."

However, the question remains whether the government formed through a mass uprising has urged the IMF to reconsider the loan conditions imposed by the illegitimate government.

"It is unclear," he said, while calling for immediate resumption of open-market sales of essentials by the Trading Corporation of Bangladesh.

The platform also proposed several alternatives for economic recovery including expanding the scope of direct taxation, which would not directly harm the standard of living of ordinary people.

"While increasing direct taxes may be challenging, the government formed through a mass uprising must accept this challenge. If the corruption occurring within the existing tax structure can be tackled, revenue would significantly be boosted."

The platform's other proposals included the recovery of $234 billion reportedly laundered abroad during the previous government's 15-year tenure, as highlighted in a white paper led by Debapriya Bhattacharya.

"Over the past 15 years, Tk 92,000 crore has been misappropriated, and defaulted loans have exceeded Tk 2 lakh crore, bankrupting the country's banks."

The existing Money Loan Court Act 2003 provides the government with legal opportunities to form a tribunal promptly.

"By utilising this provision, the government can establish a tribunal, recover defaulted funds and confiscate the assets of defaulters in case of non-repayment," Hossain added.