THE increase in taxes on more than a hundred products has sparked widespread concern among the public. At a time when inflation is soaring and economic conditions are worsening, the increase has further strained the financial capability of ordinary citizens. This increase, which predominantly affects essential goods and services, will undoubtedly lead to higher market prices, making life more challenging for the poor and the middle class. The government鈥檚 reliance on indirect taxes as a primary source of revenue is a troubling trend that disproportionately burdens the people as such taxes are directly linked to the cost of goods and services.
In an economy already grappling with declining purchasing power, the timing of the tax increase raises questions about the government鈥檚 priorities. By shifting the tax burden onto general people rather than the wealthy, the policy fails to address systemic inequalities. Wealthy individuals and corporations often evade taxes or benefit from various tax breaks despite earning substantial incomes and accumulating significant wealth. This disparity in tax collection undermines social justice and economic stability. The government must adopt stricter measures to curb tax evasion and ensure that the wealthy contribute their fair share to the national exchequer. By doing so, the need for such harsh indirect taxes could be minimised, easing the burden on ordinary citizens.
The suspension of the Trading Corporation truck sales programme has further compounded the hardship that the poor face. This programme, which provided essential goods for subsidised prices, was a lifeline for low-income families. In the context of high inflation and unstable income, its suspension shows a disconnect between the government鈥檚 economic policies and the realities on the ground. The poor and the middle class, already grappling with the high cost of living, now face an even steeper uphill battle. The absence of such critical support mechanisms erodes public trust and exacerbates social inequities.
This series of decisions reflects a troubling lack of coordination between the government鈥檚 monetary, fiscal and market policies. Instead of implementing measures to stabilise markets and provide relief for those most affected by inflation, the government has opted for action that deepens economic disparity. Revising revenue policies to focus on direct taxation of the wealthy, rather than increasing the reliance on indirect taxes, would have been a more equitable approach. Such a shift could help balance the economy, promote social justice and strengthen public confidence in the government鈥檚 ability to address pressing economic challenges.
The imposition of new taxes through a presidential ordinance in the middle of the financial year has further aggravated the situation. The increased value-added tax and supplementary duties on nearly 100 products and services, including food, clothing, telecommunications and transport, have created widespread discontent. These measures come at a time when the economy is experiencing a persistent double-digit inflation and growth rates have slowed to under 2 per cent. The abrupt nature of these tax increase raises fundamental questions about their necessity and potential consequences.
One of the primary drivers behind this decision appears to be pressure from the International Monetary Fund, which has tied the disbursement of $4.7 billion in loans to specific fiscal reforms. Among them is the requirement to increase the tax-to-GDP ratio by 0.2 per cent by the 2025鈥�26 financial year, translating to an additional Tk 12,000 crores in taxes. This is not the first time that the International Monetary Fund has imposed such conditions.
Government officials have argued that the increased taxes will not exacerbate inflation, claiming that many of the affected products are not part of the consumer price index basket. However, this argument fails to consider the broader economic realities. For example, increasing VAT on clothing from 7.5 to 15 per cent will disproportionately impact the poor and the middle class, who spend a significant portion of their income on such essentials. Similarly, higher taxes on sweets, telecommunications and other commonly used services will further strain household budgets, reducing purchasing power and deepening economic woes.
The adverse effects of these measures extend beyond consumers to businesses, particularly small and medium enterprises. Many business owners have expressed concern about the impact of higher taxes on their operation. Small businesses, which rely heavily on telecommunications for their activities, will face higher costs because of the increased taxes on mobiles and internet services. Past experiences have showed that lowering VAT rates on certain goods and services can lead to increased revenue because of higher consumption. Doubling VAT on elastic goods and services risks reducing demand, thereby failing to achieve the intended revenue goals and further depressing the economic growth.
While the government has claimed that reductions in duties on essential commodities such as rice, onions and potatoes will offset the impact of tax increase, the reality suggests otherwise. Despite the removal of duties on these items, prices have not significantly decreased. Additionally, the discontinuation of programmes like open market sales and the invalidation of millions of family cards have left low-income families without crucial support. With Ramadan approaching, a period historically marked by price increases for essential goods, the economic strain on consumers is expected to intensify.
Bangladesh鈥檚 tax structure is in dire need of reform. The tax-to-GDP ratio is among the lowest in the region. This discrepancy highlights the urgent need to expand the direct tax base. Nearly 68 per cent of eligible taxpayers do not pay income taxes, a glaring oversight that must be addressed. By bringing more people into the tax net and focusing on direct taxation, the government can achieve a more equitable and efficient revenue system.
Bangladesh has relied heavily on indirect taxes, which disproportionately affect the poor. In contrast, countries such as India derive a significant portion of their tax revenue from direct taxes, creating a more balanced and fair system. Shifting the focus to direct taxes would not only increase government revenue but also reduce economic disparities. Tackling tax evasion and improving tax administration are essential steps in this process. Estimates suggest that tax evasion costs Bangladesh between Tk 56,000 crore and Tk 300,000 crore annually. Leveraging technology and strengthening enforcement mechanisms could help to recover the lost revenues, reducing the need for regressive tax policies.
The current tax increase will undoubtedly exacerbate economic pressures on consumers and businesses alike. To address these challenges, the government must undertake comprehensive reforms of the tax structure and collection systems. Prioritising direct taxation over indirect taxation, expanding the tax base and improving enforcement are essential to achieving sustainable economic growth and reducing social inequalities.
In conclusion, the government鈥檚 reliance on indirect taxes and its failure to address systemic issues in revenue collection risk deepening economic hardship for ordinary citizens. By reforming its tax policies and adopting a more equitable approach to revenue generation, the government can create a fairer and more resilient economy. However, without immediate and decisive action, the measures will only widen the gap between policy and reality, leaving the poor and the middle class to bear the brunt of economic mismanagement.
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MA Hossain is a political and defence analyst based in Bangladesh.
