More than a hundred distinct goods and services are subjected to the newly announced value-added tax (VAT) and supplemental duty (SD) rates, further complicating matters for businesses in Bangladesh. Services, industrial manufacturing, apparel and food processing all fall under this category.

The country's private sector already faces numerous challenges. Industries in Bangladesh are grappling with higher costs when importing capital machinery and raw materials due to the devaluation of the Taka. Since the central bank raised interest rates, the cost of borrowing for term loans from banks has increased to 14–15 percent.

Many enterprises are operating at reduced capacities due to the gas supply constraint and high demand for captive energy generation. For months, business owners have been waiting for gas supplies after importing and setting up machinery. The burden of repaying project loans has become a serious concern for them.

The usual functioning of the global supply chain continues to be disrupted by geopolitical turmoil. Businesses in Bangladesh engaged in international trade are also finding this to be a difficult situation to navigate.

Although inflation dropped from 11.38 percent in November to 10.89 percent in December due to some measures taken by the central bank, the persistently high rate continues to reduce consumer demand for goods and services.

The business sector is already struggling to stay afloat, so the announcement of a price hike for energy along with additional VAT and SD charges, has made matters worse.

Many fear that these recent decisions could lead to a sharp decline in industrial production and private sector credit expansion. This, in turn, might have a chilling effect on job creation and GDP growth, in addition to reducing export competitiveness.

According to reliable sources, the purpose of implementing these increases in VAT and SD is to meet the International Monetary Fund's requirement to raise the tax-to-GDP ratio by half a percent annually until 2026.

The private sector is deeply dissatisfied with the timing and approach of such measures, especially given the current state of purchasing power parity, the closure of several manufacturing units in the ready-made garment sector and difficulties faced by small-and medium enterprises due to declining consumer demand.

The government and businesses have long been at odds over VAT, with discussions ongoing about establishing uniform rates. It remains uncertain whether raising the rate will result in higher collection. Unfortunately, over 65 percent of the country's total revenue comes from indirect taxes, which are inherently regressive. A more effective approach could have involved expanding the tax net to collect more direct income taxes.

An improvement in the collection rate could also be achieved by addressing corruption and leakages in the current process. For nearly a decade, parties have been attempting to resolve disputes over approximately $2 billion in unrealised revenue. Faster progress on the tax-to-GDP ratio might be possible through alternative dispute resolution mechanisms.

A recent decision to reorganise the National Board of Revenue into a separate entity from tax policy and collection has been widely praised. We eagerly await the implementation of this much-needed reform. But for now, it is essential to recognise that the private sector cannot shoulder such an enormous burden at this critical time.

The author is a former president of the Dhaka Chamber of Commerce and Industry