Institute for Inclusive Finance and Development (INM) Executive Director Dr Mustafa K Mujeri has criticised the interim government’s decision to increase VAT and taxes midway through the fiscal year, warning that it could lead to adverse outcomes.
Speaking at a roundtable discussion titled 'Additional Tax Burden on Consumers: What to Do for the Transition' organised by Jagonews24.com at the MCCI Conference Hall in Dhaka on Wednesday (February 12), Mujeri expressed concerns over the stagnation of Bangladesh's economy during the past six months.
"The wrong decision has been taken at the wrong time," said Mujeri, a former director general of the Bangladesh Institute of Development Studies. "Increasing VAT and taxes in the middle of the year while leaving loopholes unaddressed will not yield positive results. In fact, I anticipate significant negative consequences in the near future."
He pointed out that despite attempts to curb inflation through monetary policy adjustments, little progress has been made.
The recent hike in policy rates to 10%, as per Bangladesh Bank directives, has only harmed businesses without addressing underlying issues. "Our business environment is suffering because of these abrupt decisions," he added. "This approach is shortsighted and lacks careful consideration."
Mujeri argued that the decision to raise VAT aligns with conditions imposed by the International Monetary Fund (IMF) but fails to consider local realities.
"The prescriptions provided by the IMF and World Bank have historically proven ineffective in our context," he explained. "Their solutions often overlook ground-level challenges, leading to failure. Moreover, many individuals now believe that evading taxes carries no consequences, further undermining efforts to boost revenue collection."
He cautioned against wasting time chasing unrealistic goals, likening the situation to "chasing the golden deer." Instead, Mujeri urged policymakers to focus on practical measures that address systemic flaws.
According to Mujeri, simply increasing tax rates will not solve the problem of low revenue collection. "There is doubt whether we can collect an additional Tk 12,000 crore solely by raising taxes while ignoring existing loopholes," he said.
"A significant portion of potential revenue continues to evade the system, and higher tax rates may exacerbate this issue. Without strengthening the tax collection framework, merely hiking rates won't ensure success."
To combat revenue evasion, Mujeri called for decisive action to plug gaps in the tax system. "We need strong, firm steps to make tax collection easier and more transparent," he emphasised.
"If growth accelerates, so too will the pace of revenue generation. However, increased inflationary pressures are disproportionately affecting ordinary citizens, worsening their plight."
The economist stressed the importance of thoughtful, evidence-based policymaking rather than impulsive actions. "Policymakers seem to think that everything will fall into place if VAT is raised," he observed.
"But history shows that such prescriptions rarely work here. We must break free from this flawed mindset and adopt strategies tailored to our unique circumstances."
Mujeri concluded by urging the government to prioritize long-term solutions over quick fixes. "Rash decisions like these will only compound problems. To truly benefit the nation, we must rethink our approach and focus on fostering sustainable economic growth."