Refrigerator, AC making poised for redoubled VAT

Local manufacturers of air-conditioners and refrigerators are likely to see a twofold hike in value-added tax (VAT) in the upcoming fiscal year, under government plans for raising revenues.

Also poised for coming under higher taxation the local manufacturers of mobile-phone handset, official sources said.

The hikes might come through the Finance Bill 2026 scheduled to be placed for endorsement by the advisory council of the interim government on June 2, they said.

Currently local manufacturers pay the value-added tax (VAT) at a cut-down rate of 7.5 per cent in supply stage of their produced AC and refrigerator under a Statutory Regulatory Order (SRO). The VAT rate could be set 15 per cent in the budget for FY2025-26.

The tenure of the SRO is scheduled to expire on June 30, when the current fiscal year also passes out.

"The NBR may not extend the tax break for next FY. That would result in a twofold rise in taxes for AC and refrigerator manufacturers," says a senior government official.

Revenue officials have estimated around Tk 20 billion in VAT from these two items in the next year.

Currently, the NBR receives around Tk 10 billion worth of VAT from local manufacturers of the two home appliances.

In January, the revenue board also issued a notification to the effect that corporate income-tax rate will be 20 per cent for refrigerator, AC, and motorcycle makers.

In a notification, the tax authority said the manufacturers of these electronic appliances and motorcycles must pay the tax at the revised rate until June 30, 2032.

The tax privileges to freezer, refrigerator, and motorcycle manufacturers were offered in July 2009. It was initially set at 5.0 per cent for 12 years. The concession was later increased to 10 per cent with effect from fiscal year 2020-21, adding air-conditioners to the list of eligible products.

These incentives aimed at promoting local manufacturing of the goods under the 'Made in Bangladesh' branding campaign.

Md Mesbahuddin, Chief Marketing Officer of Fair Group, says currently local manufacturing is contributing over 90 per cent of market demand of consumer electronics.

"Many local and international brands have established factories in Bangladesh. Recent data show Bangladesh Consumer Electronics market has grown to US$3.0 billion in size."

In past few years, government has imposed higher VAT in manufacturing sector, resulting in a de-growth trend.

"Market research shows CAGR of (-8 per cent) on Ref, (-9 per cent) on TV. Whereas due to extreme weather changes AC market has grown by CAGR 11 per cent. In budget plan, if government increases VAT again, price impact will happen proportionately," the business executive alerts.

"In such cases, market may encounter further downtrend and local manufacturing investment will face a severe challenge," he says.

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