The interim government on Thursday issued two ordinances that raised Value Added Tax (VAT) and imposed supplementary duties on over 100 items, including cell phones, internet services, cigarettes, biscuits, tissue paper, imported fruits, restaurant bills, sauces, spectacles and electric poles.

On January 1, an advisory council meeting approved proposals from the National Board of Revenue (NBR) to implement these fiscal changes mid-year, aimed at boosting revenue to address the fiscal deficit.

From today, consumers will face up to 15 per cent VAT on items like restaurants, biscuits, cakes, pickles, tomato sauce, clothes, tailoring services, toilet tissue, napkins, towels, sweets, driving licenses, non-AC hotels, spectacles, sunglasses, motor workshops, and lubricant oil, up from as low as 5 per cent.

VAT on certain industrial items such as electric transformers, poles, steel products, limestone, and dolomite has also increased to 15 per cent from as low as 5 per cent, according to the NBR notification.

The VAT on medicines has been raised at the trading stage, and VAT on printing, cinema tickets, repairs, servicing, and cleaning services has also increased to 15 per cent from 10 per cent.

Airfares will rise due to an increase in excise duties on fares.

The cost of mobile phones and internet services will also go up.

The NBR has increased the supplementary duty (SD) on mobile phone usage to 23 per cent from 20 per cent, raising the total tax burden on mobile users to over 42.45 per cent, up from 39 per cent.

Broadband internet users will face a 10 per cent SD, likely increasing their bills.

The NBR increased indirect taxes at a time when overall revenue collection had fallen by 2.62 per cent during the July-November period, putting additional pressure on the government to seek borrowing from both domestic and foreign sources.

This VAT hike aligns with the International Monetary Fund’s (IMF) recommendations, which were part of the $4.7 billion loan approved for Bangladesh in January 2023.

The increase in VAT and taxes has raised concerns about its potential negative effects on businesses and consumers.

Industry representatives warn that such measures could lead to a deterioration in service quality, particularly in the ISP sector, and higher costs for customers.

The hike, introduced mid-year, is described as unprecedented and could exacerbate the financial burden on people already struggling with high inflation.

Critics suggest that the government should focus on curbing tax evasion instead of implementing such measures, which would help improve revenue without adding to public hardship.