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Bangladesh’s VAT rollout confuses consumers and businesses

Bangladesh’s VAT rollout confuses consumers and businesses

DHAKA : Raihan Khan, owner of a small diner selling rice and paratha flatbread dishes in Dhaka, has no idea how to deal with Bangladesh’s rollout of a new value added tax on Monday.

“We don’t have a machine,” the bearded restaurateur said, referring to electronic cash registers. “If I hike prices, I have to wrangle with customers.”

Khan, whose average daily sales total about $300, said he is not prepared to calculate sales electronically, and was unaware that he should add 7.5% to customers’ bills. Until now, he had paid a lump sum levy known as a package VAT.

Asia’s fastest growing economy — projected to have expanded 8.13% in the fiscal year ended June — is also one of the least-taxed in the world. The South Asian nation introduced the new levy two years after neighboring India rolled out its own goods and services tax.

The move is an attempt to raise revenue while satisfying the International Monetary Fund’s demand that it put its finances in order.

The country’s tax to gross domestic product ratio has hovered at just over 10% since 2014 — half India’s rate of 20.3%, according to a government report based on IMF data.

Bangladesh had originally planned a unified VAT of 15%, but the government relented under pressure from the business community. The country has now introduced an eight-level VAT, with four main levies of 5%, 7.5%, 10% and 15%.

It is not just shopkeepers like Khan who are struggling with the tax. Bigger businesses are also complaining about not receiving clear guidelines on the new VAT.

“We’re still studying the impact … but prices of rods will go up,” said Manwar Hossain, chairman of the Bangladesh Steel Manufacturers Association. Hossain estimated that prices will rise more than $41 per metric ton.

Shaheen Ahmmed, chief executive officer of fashion house Anjan’s, worries that fewer shoppers will come to his stores.

“Prices of products will rise. Our sales will shrink,” said the employer of some 200 people at two dozen outlets nationwide.