The Foreign Investors’ Chambers of Commerce & Industry (FICCI) Bangladesh, has said the sudden hike in VAT and supplementary duties and other taxes will impacts consumers and businesses.
In a reaction on Monday, the apex chamber representing foreign investors alleged that the policy decision was taken by the interim government without prior consultation with key stakeholders.
Highlighting that it will significantly raise the cost of doing business in the country, it said, “This measure threatens the financial stability and operational capacity of businesses that generate crucial tax revenue and drive economic growth.”
The trade body thinks that with this hike, general consumers will face potential price hikes as industries aim to minimise losses, with retail purchase costs rising by 2.5 percent due to an increase in the VAT rate from 5 percent to 7.5 percent.
The ultimate impact on the government will be a significant decrease in consumption, leading to a reduction in overall revenue. As a result, the strategy of increasing tax revenue through higher tax rates will likely be ineffective, it stated.
The FICCI says it has consistently collaborated with the government to develop rational and sustainable fiscal and regulatory policies that create a conducive business environment and align with long-term economic goals.
However, the absence of consultation in this case is a deviation from that collaborative approach, they noted.
“Policies formulated without extensive study or stakeholder consultation can negatively impact investor confidence and deter future FDI inflows,” FICCI says.
A lack of engagement with stakeholders before implementing significant policy changes may send negative signals to both domestic and international investors, raising concerns about the stability and predictability of Bangladesh’s business environment, it added.
The FICCI has urged the government to reconsider and reevaluate the recent changes in taxes.
The chamber suggested that the government should promote strategies for industries to increase their sales revenue, which will automatically result in increased tax revenue.
The government should uphold the fundamental principle of VAT law. Under a single VAT rate, if 100% input VAT is recoverable, even if the VAT rate is increased to 15%, it will have a minimal impact, it suggests.
The input credit mechanism needs to be simplified, akin to other countries, so that all SMEs and retailers can easily take input tax credit on their purchases without needing price declarations or maintaining complex VAT books.
At the same time, the government should focus on tracking all monetary transactions through simplified digitisation, according to the FICCI.
