The hike in value-added tax on 43 goods and services would not fuel inflation further, said Finance Adviser Salehuddin Ahmed.

The items are an insignificant part of the basket for consumer price index, he told journalists yesterday following a meeting of the cabinet committee on public purchase.

The VAT hike will not impact the prices of essential commodities as the government has waived all duties on essentials at the import stage.

On Wednesday, the council of advisers to the interim government approved the imposition of VAT on 43 goods and services, which includes a 15 percent VAT on restaurants, sweets, clothing and tissue paper.

At present, a 5 percent VAT is collected on restaurant bills, while a 7.5 percent VAT is imposed on sweets, clothing and tissue paper.

"We have increased VAT on over three-star restaurants, where an additional Tk 10 is unlikely to make a significant financial impact on consumers. Such price adjustments shouldn't be a headache for anyone -- this argument simply doesn't hold ground."

There are no plans to impose VAT on lower-tier eateries such as roadside diners where many low-income individuals dine, he said, adding that restaurants with an annual turnover exceeding Tk 50 lakh will fall under the provision.

About the impact on airfare, he said: "I don't think paying an additional Tk 200 is burdensome for those who can afford to fly. It's a negligible amount."

In case of air travel, the excise duty is expected to be increased from 25 percent to 100 percent.

"There are few countries in the world, including Nepal and Bhutan, where taxes are as low as they are in Bangladesh. In fact, we have almost eliminated taxes on essential commodities."

Explaining the rationale behind the VAT hike, the adviser said: "The government has already provided tax rebates worth thousands of crores of taka. Despite this, tax collection remains below target."

"Our fiscal deficit is alarmingly high, and we can no longer rely solely on borrowing and deficit budgets to sustain the economy. If we want to invest in preferred sectors like education and healthcare, we must increase revenue. Dependence on domestic and foreign borrowing alone is unsustainable."

The NBR's move is also an attempt at trimming the list of items that have a low VAT rate, in tune with recommendations of the International Monetary Fund.

The revised rates will come into effect after the official notification is issued.