As the government is on a firm footing to enforce the Value Added Tax and Supplementary Duty Act 2012 from July next, the National Board of Revenue has finalized it cancelling the tariff value system. However, there is a strong debate among experts and business community that the new law may inflate prices of essentials, putting pressure over the general consumers.
A highly placed NBR official wishing anonymity told Bangladesh Post that the government though is planning an ambitious target of collecting high revenue in the upcoming years through enforcing the new VAT law, it might invite some challenges simultaneously. The new law will have four slabs of VAT rates like 5 percent, 7.5 percent, 10 percent, and 15 percent.
After holding several talks with business leaders, the finance minister primarily set the first three slabs as Vat rates, but later on request from NBR, he agreed to add 15 percent as the highest rate, NBR officials said. According to the new law, NBR will offer tax rebate only for the sectors where 15 percent VAT is applicable, while other three slabs will remain out of the facility.
However, experts criticized that this provision will not be consistent to international standard because the modern VAT system always prefers tax rebate to all segments. "NBR's such policy will exponentially hamper the local industries and it may cause price hike of daily consuming goods," they said. AB Mirza Azizul Islam told Bangladesh Post that the NBR requires vast preparation and impact assessment prior to implementing the new VAT law so that both government and the business community are equally facilitated. Otherwise, it may create discontents among businesses and consumers.
“If there is lack of enough scope for tax rebates, the multi-layer VAT system would not benefit the business community, as almost all traders need to import raw materials from abroad. So the pressure on businesses would ultimately persist,” he added. The new Vat law suggests that there will have no tariff value system and instead VAT will be imposed on all products. Experts opine this will cause price hike of many daily-consuming goods like powder milk, biscuit, cake and bread. On contrary, if these goods are exempted from VAT, it will hamper government’s VAT collection target.
Currently, tariff value system is in place on some 85 essentials including biscuits, cakes, breads, powder milk, LED lights, tube lights, sun glasses and so many.
Once tariff value is withdrawn, the consumers will have to pay VAT on overall price of goods, thus increasing the fare. As per tariff value system, when there is no tariff value set for a product worth Tk 100, for an example, a consumer has to pay Tk 15 VAT at 15 percent rate. When its tariff value is set at Tk 40, then the VAT will be calculated over Tk 40, and will count Tk 6. That means, no VAT will be charged over the rest Tk 60.
Besides, there are 16 service sectors, including hotel, restaurants, construction, gold ornaments, and ICT from where NBR now collects VAT based on the compressed price or value addition system, but as per the new law, VAT will be extracted from these sectors based on the actual price. These will hike prices of these services, experts said.
A senior NBR official told Bangladesh Post that the new VAT law is being prepared with the supervisions of governments high-ups. So, NBR has to compromise with some issues. Apart from this, the NBR and FBCCI are now in serious tussle over some issues of the law. FBCCI, recently in a letter to NBR expressed apprehension saying that NBR is still not prepared with implementing the new law, and such condition might create inflation, leading to public suffering, resentment and instability in society.
FBCCI also blamed that NBR did not take any visible steps to amend the law and did not make any impact assessment with this regard in two years last.
However, the new law incorporates some provisions to encourage small entrepreneurs as the VAT-free limit will be Tk 50 lakh from the existing 36 lakh.
The law will also scrap the package VAT system to streamline VAT collection as many big businesses in the guise of small traders pay VAT under package system.
Currently, the traders having an annual turnover worth Tk 80 lakh have to pay three percent VAT but the new law will upgrade this limit to Tk 3 crore though the trader here have to pay five percent VAT on their turnovers.