This is what many had been fearing. The 15% flat VAT rate will be taking effect from July 1. Yes, the VAT is a powerful generator of revenue for the government, but let’s face it: This flat VAT stands to do more harm than good. A flat VAT is, first of all, regressive and unfair. Secondly, the rate is too high.
This tax is, then, insensitive to the plight of the poor. It will raise the cost of living significantly, and make it more difficult for low-income individuals and families to survive. That is not the end of it. With an increased VAT for almost every item across the production line, it will be harder for smaller businesses to compete.
Our local businesses will no doubt be hurt, which is a bad move at a time when we should be encouraging local industries to succeed in the face of so much foreign competition. Some exceptions to the VAT have been announced, such as education and life-saving medicines, but ultimately that is not enough.
Considering that the South Asian average for VAT is 10.7%, a 15% flat VAT is unreasonably high, especially considering our developing status.
The government should find better alternatives for raising revenue for the country — ones that do not disproportionately hurt the poor. Certainly, income tax is a better way to go about it. This can be achieved by broadening the tax base and clamping down on tax evasion.
A very small percentage of Bangladeshis pay income tax, and therein lies the problem. Instead of subjecting people to such a high VAT rate, the government would do well to focus on income tax for revenue. And this means reforming the whole tax system.
Dhaka Tribune, June 2, 2017