Source tax hike on essentials shelved

A proposed tax hike on essential commodities in the upcoming budget is shelved as the government backtracks on the move to ease inflationary pressures on consumers, officials say.

The proposal by tax authorities to double the existing 0.5-percent source tax to 1.0 per cent has been dropped after "failing to secure approval from higher authorities," they add.

Tax officials have said the reduced tax primarily benefits businesses rather than consumers directly.

However, they acknowledge that any increase in source tax often triggers higher market prices, "sometimes intentionally, as traders seek to maximise profits".

Currently, 0.5-percent tax at source is imposed on both local procurement and imports of essential commodities, including sugar, soybean oil, rice paddy, wheat, potatoes, and onions.

In the current budget, the government halved the source tax from 1.0 per cent to 0.5 per cent in an attempt to help reduce the prices of essential goods.

To ease the burden on marginal farmers and suppliers, the interim government also reduced the source tax on income earned from the supply of essential commodities such as paddy, rice, wheat, potatoes, jute, and tea leaves.

The tax is levied both on letters of credit (LCs) opened for importing essential goods and on local procurement.

"Source tax on the import of essential commodities does not significantly affect revenue collection or the final price of goods. Yet, a section of traders use it as a pretext to raise prices," the budget speech for the outgoing fiscal year reads.

"Considering this, a decision has been made in the upcoming budget to reduce the source tax. To help keep essential commodity prices affordable, the source tax on local letter-of-credit commission is being halved," it adds.

However, consumers have not seen any noticeable impact from the tax cut over the past 10 months. Instead, they have experienced continued increases in commodity prices, partly driven by higher fuel costs.

Bangladesh has been experiencing elevated inflation for 51 consecutive months, an unusually prolonged period of inflationary pressure.

Items subject to source tax include paddy, wheat, potatoes, onions, garlic, peas, chickpeas, lentils, ginger, turmeric, dried chillies, pulses, maize, coarse flour, flour, salt, sugar, edible oils, black pepper, cinnamon, nuts, cloves, dates, cassia leaves, computers and computer parts, and all varieties of fruits.

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