Fiscal measures must balance revenue goals with consumer realities
The government’s recent decision to raise the advance tax (AT) on commercial imports from 5 to 7.5 per cent, while reducing it for industrial importers, has sparked concern among leading economists — and rightly so.
As highlighted during the post-budget discussion hosted by the Metropolitan Chamber of Commerce and Industry (MCCI) and the Policy Research Institute (PRI), this move, though fiscally motivated, could have adverse consequences for consumers and the broader economy, the New Nation reported on Tuesday.
PRI Chairman Dr Zaidi Sattar rightly warned that while the tax hike may aim to offset VAT evasion, its inflationary side effects should not be ignored.
At a time when the country is only beginning to see a modest easing of inflation—now at 9.05 per cent in May after prolonged double-digit pressure—any measure that risks raising prices further must be carefully reconsidered.
Although the reduced AT on raw material imports seeks to support domestic industries, the burden placed on commercial importers will likely filter down to consumers through higher retail prices.
With food and non-food inflation still hovering around 8.6 and 9.4 per cent respectively, even minor increases in costs can erode household purchasing power, disproportionately affecting low- and middle-income families.
Moreover, growing fiscal deficits and excessive borrowing—particularly from domestic banks and the central bank—compound the problem.
These trends fuel inflation, crowd out private sector credit, and weaken the taka. As Dr Sattar cautioned, over-reliance on Treasury bills to finance deficits also inflates debt servicing costs and limits fiscal flexibility.
To mitigate these risks, Bangladesh must pursue structural reforms rather than short-term fixes. Caps on domestic borrowing — such as the recommended 1 per cent of GDP — could help restore financial discipline.
A rationalised tariff structure, more efficient VAT and income tax collection, and a transition away from distortionary subsidies are all vital to long-term fiscal sustainability.
MCCI President Kamran T Rahman’s warning that expanded government borrowing may choke private sector investment is a timely reminder.
Economic growth cannot be sustained if policy disproportionately favours revenue generation over investment incentives and consumer welfare.
In crafting the final budget, the government must strike a delicate balance. Fiscal prudence is necessary, but so too is social and economic stability.
A more holistic approach to taxation, borrowing, and productivity is needed — one that supports industry, protects consumers, and fosters a resilient and inclusive economy.