NBR expects additional GST of Rs 11,450 crore from 6 major sectors

Overview of the most important events:

• Tk1 target 77,000 cr for fiscal year 2025
• The target for fiscal year 2024 was Tk 1,51,700 million
• NBR plans to collect Tk 6,000 crore from tobacco, Tk 1,800 crore from telephone talk time, internet usage and SIM cards, Tk 1,000 crore from bank deposits
• 400 kr from air conditioners and refrigerators and 250 kr from products containing sugar
• 2000 kr in VAT at source from entities with a turnover above 10 kr

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The National Board of Revenue (NBR) aims to raise an additional Tk 11,450 crore by increasing the value added tax (VAT) rate and reducing exemptions in six key sectors.

These sectors include tobacco, mobile phone talk time and internet usage, excise duties on bank deposits, confectionary products, VAT deduction at source and electronic goods.

The NBR has already provided the Ministry of Finance with a summary of VAT collection targets by sector as part of its fiscal measures proposal.

The VAT collection target for the just concluded FY24 was Tk 1,51,700 crore. This target was increased by about 17% to Tk 1,77,000 crore for FY25.

However, the amount of VAT collected for FY24 is yet to be finalized. If the FY24 target is achieved, the NBR will have to collect an additional Tk 25,300 crore in VAT in the current fiscal year FY25.

“Normal economic growth and inflation will naturally lead to a normal increase in VAT. In addition, fiscal measures, including increased rates of new VAT and supplementary duties, will enable recovery of this additional VAT,” a senior NBR official told The Business Standard.

NBR aims to generate the highest VAT revenue from the tobacco sector. In addition to increasing the value of tobacco products in the budget, the rate of supplementary duty has also been increased at all levels.

In fiscal 2022, around Tk 33,000 crore was collected in VAT and SD from the tobacco sector. With the new rate hike, the NBR expects to collect an additional Tk 6,000 crore.

The telecommunications sector is another important target for the NBR.

Raising tax on call time, internet usage and SIM cards could generate an additional Tk 1,800 crore.

Moreover, the increase in excise duty on bank deposits could generate an additional Tk 1,000 crore from customers, while Tk 400 crore could be collected from air-conditioners and refrigerators and Tk 250 crore from sugar-containing items, including drinks and ice-creams.

Also, if an entity has an annual turnover of more than Tk 10 crore, it will have to deduct VAT at source at a fixed rate from its expenses. This measure is expected to generate an additional Tk 2,000 crore.

However, this additional revenue will result in consumers having to bear the burden of increased VAT of over Tk 25,000 crore in the new fiscal year.

Representatives of consumer organisations have consistently opposed increasing the VAT rate because they consider it an indirect tax that disproportionately affects consumers.

SM Nazer Hossan, vice-president of the Consumer Association of Bangladesh (CAB), told TBS: “In addition to VAT, additional import taxes levied at the import stage will increase the prices of goods, effectively acting as indirect taxes. This could put an additional burden on consumers, especially in the face of already high inflation.”

“Instead, raising the income tax rate, focusing on reducing tax evasion and corruption would increase government revenues and provide some relief to consumers,” he said.

Professor Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD), said: “Our structural flaw is that the government relies heavily on indirect taxes rather than direct taxes, which ultimately puts pressure on consumers, including those with lower incomes.”

Giving an example, he said, “The additional additional tax imposed on mobile talk time and internet users in the budget will affect millions of people, including the poor, who are already struggling with high inflation.”

Calling on the government to focus on direct taxes in this situation, he also stressed the importance of ensuring that VAT revenues do not suffer from leakages.