The Foreign Investors’ Chamber of Commerce & Industry (FICCI) Bangladesh, representing 90% of the country’s Foreign Direct Investment (FDI), has expressed serious concerns over recent decisions to increase VAT and Supplementary Duty (SD) on various products without prior consultation with key stakeholders.
FICCI, which represents sectors such as tobacco, telecom, energy, and financial institutions that contribute approximately 30% of Bangladesh’s total internal revenue, warned that these tax hikes would significantly increase the cost of doing business and strain consumers, said a press release.
The changes include a hike in VAT to 15% under non-recoverable conditions for critical business categories:
Procurement Providers: Increase from 7.5% to 15% (100% input VAT non-recoverable)
Repairs & Maintenance: Increase from 10% to 15% (100% input VAT non-recoverable)
Transport Contractors: Increase from 10% to 15% (20% input VAT non-recoverable)
Restaurants: Increase from 5% to 15% (100% input VAT non-recoverable)
FICCI noted that the higher VAT would likely lead to retail price increases, with consumer costs rising by 2.5% due to the VAT hike from 5% to 7.5%. Such measures, it warned, could reduce consumption, ultimately decreasing government revenue and undermining the goal of boosting tax collection through higher rates.
The absence of consultation, FICCI emphasised, undermines investor confidence and sends negative signals to both domestic and international investors. Policies introduced without stakeholder input risk destabilising Bangladesh’s business environment, deterring future FDI inflows.
FICCI urged the government to reevaluate the recent tax changes and prioritize collaborative policymaking. Key suggestions include:
Encourage Revenue Growth Through Sales: Promote strategies for industries to increase sales, leading to higher tax revenue without overburdening businesses or consumers.
Simplify VAT Input Mechanisms: Ensure 100% input VAT recoverability under a single VAT rate. Simplify input credit mechanisms to align with international standards, enabling SMEs and retailers to claim credits without complex documentation or price declarations.
Leverage Digital Tools: Focus on tracking monetary transactions through simplified digitization to improve compliance and transparency.
FICCI reaffirmed its commitment to collaborating with the government to formulate rational fiscal and regulatory policies that foster economic growth and maintain Bangladesh’s appeal as an investment destination.
The chamber emphasised the need for transparent and constructive engagement with the business community to create balanced policies that ensure fiscal responsibility while supporting sustainable economic development.