Streaming Surcharge, Software Slashes, and Smartphone Relief in Budget Blueprint

As the government prepares to unveil the proposed national budget for the fiscal year 2025–26 on Monday, June 2, several key changes in taxation are expected to reshape the digital, e-commerce, and electronics sectors.

According to budget insiders, the source tax on internet services is set to be reduced from 10% to 5%. However, in contrast, a 10% supplementary duty is proposed to be levied on online streaming and over-the-top (OTT) platforms.

Commenting on the proposed OTT duty, Saiful Islam Siddique, Senior Vice President of the Internet Service Providers Association of Bangladesh (ISPAB), warned, “It will be a major obstacle to the growth of domestic OTT platforms. Since ISPs have already doubled the bandwidth at the customer level, the source tax should be brought down to zero percent. The government may impose a 10% supplementary duty on foreign OTT platforms like Netflix, Amazon Prime, Disney+, Hulu, Hoichoi. But for locally operated OTT services, the duty must be zero percent. Also, OTT operators should be required to obtain e-CAB membership.”

The draft budget also proposes an extension of VAT exemption on mobile phone manufacturing and assembly by two years. However, the existing VAT slabs of 2%, 5%, and 7.5% may be increased to 4%, 7.5%, and 10% respectively for that period.

Ziauddin Chowdhury, Country Manager of Xiaomi Bangladesh, said in response, ~I believe this will have no impact at the consumer level. At the production level, mobile handset manufacturers may see a slight decrease in profit margins, but that too is not very significant. Most mobile handset manufacturers add around 30% value, and it doesn’t cost much to reach the consumer level. So, in my opinion, there will be no significant impact at the business level either".

VAT exemption has also been extended for the production of lifts, LPG cylinders, motor vehicles including electric vehicles, and ICU ambulances. Meanwhile, the import of raw materials used in refrigerator and air conditioner compressors will continue to enjoy supplementary duty exemptions. However, VAT will now apply to the production stage for these items, as previous exemptions are being withdrawn.

The manufacturing and retail sale of 30-inch computer monitors will now enjoy VAT exemptions, while VAT on washing machines, microwave ovens, electric ovens, and LPG cylinder manufacturing is likely to increase.

A proposed 2.5% hike in VAT—from 5% to 7.5%—for hardware manufacturers is also on the table. Mohammad Zahirul Islam, Managing Director of Smart Technologies (BD) Ltd, said this will have “minimal impact” on the sector.

In contrast, the customs duty on various imported software is expected to be cut from 25% to 15%, prompting concerns of unfair competition for local developers.

Syed Almas Kabir, former President of BASIS, remarked, “It’s better not to lower tariffs on software types already developed domestically. However, I believe that organizations spending at least 50% of their software procurement budget on local products should receive tax rebates or other incentives. This would encourage local software adoption.”

Speaking about the hardware sector, he added, “It will be difficult to compete with imported hardware, and the domestic hardware industry will be stifled at the seed stage. I believe VAT should be waived for locally assembled hardware products to help this sector grow.”

The budget also proposes tripling the VAT on online sales commissions from 5% to 15%. This would primarily affect large e-commerce marketplaces. However, businesses operating through their own websites or via social media platforms would remain unaffected.

AKM Fahim Mashroor, CEO of AjkerDeal and former BASIS President, stated, “This VAT hike on sales commission will directly impact large commission-based e-commerce platforms such as Daraz, Pathao, and Foodpanda. These businesses rely heavily on sales commission for revenue. The increased cost will eventually be passed on to customers. If the proposed VAT rate remains in the final budget, it will indirectly affect buyers and may negatively impact the e-commerce sector.”

The government is also considering raising the price of battery-operated rickshaws in Dhaka by increasing customs duty on 1,200-watt DC motors from 1% to 15%. Customs duties on aircraft will rise from zero to 1%, and total taxes on helicopters may jump from 10% to 37%.

An additional 10% customs duty has been proposed on raw materials used to manufacture energy-efficient LED lights, likely leading to a rise in retail prices.

While these proposals reflect the government’s intent to balance incentives and revenue, the final verdict on whether this budget will ease or strain the lives of the lower- and middle-income population remains uncertain until it is formally passed. Whether it will brighten their daily lives or usher in new challenges is yet to be seen.