Uprising victims' medical costs behind VAT hikes

Finance Adviser Dr Salehuddin Ahmed said Sunday he was forced to raise value-added tax (VAT) to cover the additional expenses incurred due to funding the 2024 uprising victims' treatment costs.

He said each critically injured student was given Tk 3.5 million, while some 300 police vehicles were burnt, which resulted in extra costs of over Tk 5.0 billion.

"Where can I get the money? I was forced to raise VAT to cover these expenses," the adviser said, replying to a query about the reason for increasing VAT on many products in the middle of the financial year.

Salehuddin was addressing a view-exchange meeting titled "The role of remittance in Bangladesh economy" organised by the Bangladesh Secretariat Reporters' Forum (BSRF) in the capital.

He said the government also lowered VAT on some products just after the hike.

Regarding the country's financial health, the adviser said the economy is making a turnaround gradually, but many hurdles are also there.

"I will not say we are doing very well, but at the same time, we are not in a worse position compared to other countries," Salehuddin said.

The adviser said the resource gap in Bangladesh is very high, which is why assistance needs to be taken from lenders like the International Monetary Fund (IMF), the World Bank (WB), and the Asian Development Bank (ADB).

He said a country needs to fulfil some conditions to get money from lenders. "They ask for raising VAT, which has created some problems."

Salehuddin said the ADB gave $500 million in December 2024 and the WB would provide the same amount in June, while the IMF would give $2.0 billion in March or June.

"They gave some conditions, such as raising VAT and taxes. To increase income tax, approval is needed from parliament. On the other hand, VAT can be raised through statutory regulatory orders," explained the adviser.

He said the increased VAT would add some Tk 120 billion to the state coffers, which is not a big amount. "However, it is true that there are some effects of higher VAT."

Regarding criticisms over VAT hikes, the adviser said mistakes sometimes happen and the government corrects those later.

Salehuddin said the government is unable to make important decisions on popular demands.

Economists ask the government to increase revenues, but at the same time advocate for lowering VAT and taxes, he noted.

He further said people are getting back their confidence and expatriates are sending money through official channels instead of illegal ones.

The adviser said the current account, financial account, and export growth were in the negative territory a few days back. "Now they have turned positive and the macroeconomic situation has stabilised to some extent."

syful-islam@outlook.com