The National Board of Revenue (NBR) is preparing to double the existing tax rate for companies manufacturing motorcycles, refrigerators, air conditioners, and compressors, according to sources within the organization. This significant policy shift, likely to take effect in FY26, follows earlier increases in value-added tax (VAT) on more than 50 goods and services reportedly.
Currently, these industries benefit from a 10% corporate tax rate and a 2% advance income tax (AIT) on the import of machinery, parts, and equipment, under a policy intended to remain valid until 2032. However, the NBR has hinted at canceling the existing order, with a new one expected to be issued imminently. If the AIT on imports is raised, the change will be implemented immediately upon issuance of the order, according to a senior NBR official.
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This proposal comes amid discussions to raise the VAT rate on electronics from the current 7.5% to 15% in the upcoming budget. Industry insiders warn that doubling taxes will add pressure to the already struggling motorcycle, refrigerator, and air conditioner sectors, ultimately transferring the burden to consumers.
Notably, in 2019, an NBR directive established a reduced tax rate of 5% for these manufacturers. This was later revised to 10% in 2021, with assurances that the rate would remain unchanged until 2032. Frequent changes in tax policy have raised concerns among investors and industry leaders, highlighting inconsistencies that undermine confidence in the country’s investment environment.
The proposed tax hike aligns with the NBR’s efforts to meet the International Monetary Fund’s (IMF) conditions, which include collecting an additional Tk 12,000 crore beyond the initial revenue target for the current fiscal year. According to NBR estimates, increasing taxes on these four product categories could generate an additional Tk 1,000 crore annually.
Leading companies such as Walton, Honda, TVS, and Runner, which dominate the manufacturing landscape for these products, have made significant investments, leveraging the promised long-term tax benefits. Moreover, Singer, Sony, and Rangs have also injected capital into the sector.
It is being criticized the abrupt cancellation of tax benefits, calling it a step that would deter both local and foreign investments. He emphasized that such policy shifts disrupt investor confidence and could have lasting negative implications for the business environment.
While higher tax revenue is crucial for the government, the existing inefficiencies in ports, customs, and logistics could mitigate the adverse effects of this tax increase. A more efficient and business-friendly ecosystem could help offset some of the challenges brought about by frequent policy changes.
As the NBR moves forward with these plans, stakeholders await clarity on how the government will balance revenue generation with sustaining a conducive investment climate.
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