The impending 15 percent VAT on rod will take a huge toll on construction of buildings, particularly in rural areas, steel millers said yesterday.

If every tonne of rod is priced at Tk 50,000, each customer will have to pay Tk 7,800 as VAT under the new law, up from Tk 900 now, said Manwar Hossain, chairman of the Bangladesh Auto Re-Rolling and Steel Mills Association (BARSMA).

As a result, the development of the rural housing sector, which account for about 30 percent of the country's total demand for iron bar, will grind to a halt.

The government is set to impose a uniform 15 percent value-added tax on most goods and services available in the country under the new VAT law from July 1.

“The consumption of rod in rural areas will crash overnight as its prices will go beyond the purchasing capacity of many families.”

Hossain's comments came at a press conference jointly organised by the BARSMA along with the Bangladesh Re-Rolling Mills Association and the Bangladesh Steel Mill Owners Association at the auditorium of the Dhaka Chamber of Commerce and Industry.

The use of rod in rural areas may fall to about 2-3 lakh tonnes from the existing 15-18 lakh tonnes, according to the BARSMA chairman.

Home construction in rural areas was one of the major factors fuelling the growth of the steel industry.

The sector now manufactures 50 lakh tonnes of steel a year, up by 1.5 times from 2009, Hossain said.

The uniform 15 percent VAT will also increase the electricity bills for manufacturing the iron bars and the spending on raw material imports, he said. “All of these will ultimately affect the rod price.”

The infrastructure and other construction projects of the government account for 40 percent of the country's demand for rod, followed by private builders in urban areas, who use the rest 30 percent, according to the millers.

“The new VAT will increase the government's revenue earnings from the sector but the industry will be squeezed,” Hossain said, adding that the demand for rod will also fall in urban areas.

Rod prices began increasing just after the announcement of the proposed budget for fiscal 2017-18 on June 1 amid increased demand from a section of traders and contractors over speculation of a price hike.

For instance, a tonne of 60-grade rod yesterday sold at Tk 53,500-Tk 54,500, up from Tk 52,000-Tk 53,000 a month ago, according to the Trading Corporation of Bangladesh.

“It is illogical to impose VAT on key building materials when the government is exempting VAT on manufacturing of luxury goods like refrigerators and air conditioners. We know how much our customers can bear,” Hossain said.

The other stakeholders such as realtors and construction firms are also in opposition of the 15 percent VAT.

He also said the retailers and wholesalers are showing 'serious resentment' towards the government move to implement the new VAT law.

“They are not yet ready for the new VAT. They say the government's effort to bring everyone under the VAT net in such a way will only cause harassment,” Hossain added.

The government contractors may now demand for cutbacks in rod prices, said SK Masadul Alam Masud, former chairman of Barsma.

“As a result, our rod sales will drop and we may have to default on loans.”