The government is likely to hike value-added tax (VAT) on broadband internet and impose a 5 per cent VAT on handsets manufacturing in the upcoming budget, which will increase handset and internet prices from next fiscal year. 

The National Board of Revenue (NBR) is going to increase the VAT on broadband internet by 5 per cent, taking the total VAT to 10 per cent, as per finance ministry sources. Currently there is no VAT on mobile phone.

The decisions are going to hit 1.1 crore broadband internet users and make it harder for people to avail handsets, all the while the digital divide continuing to persist in the country.

"The government's vision of establishing a Digital Bangladesh will be adversely affected if another 5 per cent VAT is imposed," Aminul Hakim, managing director of broadband service provider Amber IT, told The Daily Star.

"Ultimately, end users will have to bear this extra cost," he said.

Currently, the government collects VAT during bandwidth sale at different stages of the supply chain, each time charging 5 per cent.

The bandwidth is sold by the submarine cable company to International Internet Gateway (IIG) service providers, then to internet service providers (ISP) and finally to end customers.

"So, if the government increases VAT at retail level, the total VAT would be over 20 per cent from the industry," he added.

The number of broadband internet connections has doubled to 1.99 crore since the pandemic, with a vast number of people now heavily reliant on the internet, propelled by work from home practices and remote learning.

Md Emdadul Hoque, president of the Internet Service Providers Association of Bangladesh (ISPAB), said despite the pandemic-induced growth, broadband penetration in the population now stands at 7 per cent, one of the lowest in the South Asian region.

"If there is additional VAT, the broadband penetration growth will slow, creating a negative impact on the economy as internet use has a significant contribution to the GDP," said Hoque.

He said it would not be possible for the ISPs to sell the internet at the flat one country, one rate if the VAT rate increases.

The telecom regulator, Bangladesh Telecommunication Regulatory Commission (BTRC), fixed the maximum tariff for broadband internet connection in June last year.

A customer now must pay Tk 500 a month for using a broadband connection with a minimum internet speed of 5 Mbps.

"Over the last two years broadband internet use surged and the government collection of VAT increased due to that. If the government refrains from increasing the VAT, the number of customers will grow, ultimately contributing to the government exchequer," he said.

The local booming mobile manufacturing and assembling industry players said they would be hurt with any imposition of VAT as sales have fallen by over 20 per cent this year, with people reluctant to make purchases amidst surging inflation.

"This will undermine the government's effort to boost local manufacturing of mobile phones," said Zakaria Shahid, managing director of Edison Group, the parent company of Symphony.

Currently, about over 90 per cent of the demand for smartphones is met by 14 local manufacturers.

Although the pandemic has accelerated the adoption of digital technologies, smartphone penetration in Bangladesh still stands below 50 per cent of mobile phone users due to their high price and a lack of affordability among people.

Shahid said the prices of devices were already on a rising trend due to surging dollar prices and this additional VAT would compel customers to pay around 15 per cent more for a phone.

Mohammad Mesbah Uddin, chief marketing officer of Fair Electronics, Samsung's local assembly partner, said the mobile phones had now become an essential item for people and a VAT imposed on handset would devastate users.

"As prices of everything are rising, the government should refrain from hurting customers further with this VAT," he added.