A good mobile phone, a good perfume, a long-planned family trip to Thailand - all these things that a comfortably middle-income Bangladeshi might desire - are about to get much costlier.
The government has planned tax hikes on many products and services that, added on top of the increased costs due to a 15% flat VAT, are likely to make a good living a far-off dream for a lot of citizens.
All in all, Bangladesh’s aspiring middle class appears to be bearing the brunt of the FY2017-18 budget’s ambitious revenue targets.
Even savings beyond Tk1 lakh are going to face an additional excise duty, a move that might make putting money in banks a financial loss.
According to a 2015 study by the Bangladesh Institute of Development Studies, 20% of Bangladeshis are now in the middle income bracket. By 2025, this number will capture one-quarter of the population and by 2030, about one-third.
Of them, the majority have some university education and almost half have salaried jobs in the private sector.
By International Monetary Fund (IMF) estimations, the per-capita monthly income in the country is at about Tk10,132. Household incomes and expenditures are on the rise, with the economy registering a growth rate consistently above 6% over the past decade.
Despite all the growth, middle class consumers will face added costs whenever they try to trade up to things that might make for a better life.
From July when the VAT Act 2012 kicks in for three years, almost everything retail, from clothes to shoes to bottled water, will see a spike in prices.
On top of that, the new budget has added new taxes to bigger cars, smartphones, imported cosmetics and toiletries and fast food.
Finance Minister AMA Muhith announced his 11th budget in parliament on Thursday, for the last time in this government’s term.
He proposed an excise duty on bank accounts that have had debit or credit of Tk1 lakh or above at any point in a year. Up to Tk10 lakh, the duty will now be Tk800.
The import duty on cellular phones would be 10% in 2017-18 fiscal year, which was 5% in the previous fiscal year.
An importer told the Dhaka Tribune that the 10% import duty would cause handset prices to increase around 30%.
Air travel will become costlier, with excise duty on air tickets to Asian countries outside of Saarc rising to Tk2,000 instead of the existing Tk1,000.
In addition, the excise duty on airline tickets for travel to Europe, USA and other countries of the world would be Tk3,000 as opposed to the current Tk1,500.
Imported toiletries and cosmetics will see a 5 to 10% increase in customs duty in this budget.
Fast food in particular will see a sharp rise in prices. “Considering the health risk of our future generations,” the minister proposed to have a 10% supplementary duty on what he called “junk food,” at the local supply stage on top of the already applicable 15% VAT.
Another middle class aspiration that will be hard hit is the dream of a good education, as the VAT immunity of English-medium schools is withdrawn and a 15% tax is applied to it under the VAT Act.