VAT likely to go up on 13 items – from fruit juice to LED bulbs to home appliances

The government plans to increase the value-added tax (VAT) on more than 13 goods and services, including LED bulbs and tube lights, various juices, mango bars, rolling paper, security services, auction services, refrigerators, and air conditioners.

Finance ministry officials said most of these items may face a 15% VAT at the manufacturing stage. Additionally, the VAT exemption for air conditioner manufacturing is likely to be phased out this fiscal year ending on 30 June, potentially subjecting it to a new 5% VAT in FY25.

For refrigerator manufacturing, the VAT rate is expected to increase from the existing 5% to 10%.

Furthermore, mobile operators are expected to face an increase in tax on the sale of SIM cards, rising from the current Tk200 to Tk300, according to finance ministry officials familiar with the next fiscal year's budgetary planning.

Sources indicate that the International Monetary Fund (IMF) has advised the government to withdraw various tax exemptions, prompting the National Board of Revenue (NBR) to plan their discontinuation and rate increases for the next financial year.

Although the government had previously exempted the country's electronics sector from VAT for several years, the NBR plans to impose VAT on air conditioner manufacturing starting in the next financial year, industry insiders added.

They expressed concerns that this move would increase operational costs, necessitating the transfer of much of the burden to consumers during times of high inflationary pressure.

Seeking anonymity, a top official of a leading mobile phone operator said further taxes on SIM card sales would negatively impact business growth.

Mobile phone operators said they fear a potential decrease in new connections in the next fiscal year and expressed concerns about the impact on foreign direct investment (FDI) due to these fiscal policy changes.

Kamruzzaman Kamal, marketing director of PRAN-RFL Group, emphasised that no company has the capacity to absorb such production cost increases if VAT rates rise.

"These costs will have to be passed on to consumers, otherwise businesses will struggle to afford them," he added.

The electronics industry, once fully dependent on imports about ten years ago, has grown as an import-substitute industry.

Kamruzzaman expressed concern that, after the VAT rate increase, the industry may lose competitiveness against imported products. He also expressed worries that the air conditioner manufacturing industry, which is still in its infancy, might not develop further.

Seeking anonymity, an official of Walton Group said manufacturers can meet approximately 90% of the local demand for refrigerators and 60% for air conditioners.

"When the government withdrew the VAT exemption on refrigerator manufacturing, the industry faced setbacks in the current fiscal year's budget. Another blow may await both industries in the new budget," he added.

The official said the government's fiscal policy has adversely affected their export market exploration plans, and adding a VAT increase on electric bulbs will affect both consumers and businesses.

Conversely, increasing the VAT rate from 5% to 15% on mango bars and juice, tamarind juice, guava juice, pineapple juice, and mango bar manufacturing could limit access to nutritious products for people.

According to finance ministry officials, obtaining security services from third-party companies and participating in auctions will be costlier in the next fiscal year, with the government planning to raise VAT on both services to 15% from the current 10%.

In FY21, the government exempted about Tk3.18 lakh crore in taxes, including Tk1.5 lakh crore from VAT and Tk1.25 lakh crore from income tax. These exemptions are categorised as tax expenditures.

As part of the $4.7 billion loan package, the IMF has stipulated conditions, including the rationalisation of tax expenditures. All types of tax exemptions are expected to be phased out by 2027 to enhance revenue realisation.