The new VAT law (VAT and Supplementary Duty Act, 2012 and Rules 2016) has finally been scheduled to be put into effect this year starting from July 01, 2019. The law was put on hold for many a times due to various internal and external factors. This time, National Board of Revenue (NBR) seems to be confident enough to put it into effect, though it may face various internal and external challenges.
Over the last two years, the Government has put in a lot of efforts to explain the need of the new Act and its benefits to the country as a whole through all forms of media such as television and newspaper advertisements, social media updates, radio broadcasts, etc. The business is now apparently ready to welcome the new VAT Act. Having said this, the business community at large is apprehending hurdles in implementation of the new VAT law due to lack of clarity on various emerging issues which are not yet clarified by the NBR. Following are some of the issues that are not yet resolved and needs to be clarified by the NBR before implementation of the new VAT law.
ON-LINE REGISTRATION: In order to expand the VAT net and to encourage the business houses to obtain VAT registration, the Government had introduced granting of on-line VAT registration since March 2017. It was an encouraging attempt by NBR under the VAT on-line project wherein the intended VAT payer was able to obtain VAT registration on the basis of very few relevant documents within an hour, sitting at his office. It was a hassle-free initiative of the NBR to grant VAT registration and as a result a large number of intended taxpayers had voluntarily obtained VAT registration. It has been observed over last two months that granting of such instant on-line VAT registration system has been withdrawn for some unknown reasons and as a result, even after filing of on-line application, granting of on-line registration is inordinately delayed. In effect, this would be an impediment to VAT digitisation process of the government.
Moreover, the new VAT law has proposed centralised VAT registration against a single Tax Identification Number (TIN) and accordingly, an entity having multifarious activities across various places of business in Bangladesh should have a single VAT registration. However, at present even under centralised VAT registration, separate 9-digit Business Identification Number (BIN) has been granted to the companies in respect of its each place of business and the registered persons are required to file separate VAT returns in respect of each such registration. It is not yet clarified whether such different BIN granted to an entity would be discontinued and would be replaced by a single VAT registration under the new VAT law regime which would permit the registered person to file a single VAT return. Necessary clarification is yet to be issued by the NBR.
USE OF SOFTWARE FOR MAINTAINING VAT RECORDS: The new VAT law would be fully effective and efficient only when the much needed modernisation and digitisation of the VAT system will become operational. The transition from manual proceedings to a virtual VAT administration will assist in overcoming the bureaucratic hassles that the businesses currently have to deal with under the present VAT system. VAT on-line project is progressing towards this objective.
However, business community at large is in a fix over the recent NBR directives to use their approved software from selected 11 software developers. It may be mentioned here that the new VAT law does not mandate the VAT-registered person to use any software duly approved by NBR for maintenance of VAT records. Under these circumstances, necessary clarification should be issued by NBR clarifying whether under the new VAT regime, a registered person having turnover above BDT 50 million (5.0 crores) would be mandatorily required to use such approved software for maintenance of VAT records.
MULTIPLE VAT RATES AND INPUT TAX CREDIT: The new VAT law may propose multitier VAT rates at 5.0 per cent, 7.5 per cent, 10 per cent and 15 per cent. It is expected that goods and services covered under these rates would be notified under different Schedules. It is also expected that goods proposed to be exempted from payment of VAT at various stages would also be notified under a separate schedule.
However, it is still not clear whether input tax credit would be allowed at each stage in respect of supply of goods and services falling under all the aforesaid VAT rates. Further it is also not clear whether the lower rate would be optional with no input tax credit. This clarification is very crucial for manufacturing as well as trading community to determine their sale price of final goods and services. Further, in the event credit is granted across the board and where output VAT rate is lower than corresponding input VAT rate, the Government may have to refund accumulated input tax credit due to inverted duty structure.
APPOINTMENT OF VAT AGENT BY A NON-RESIDENT: The new VAT law requires a non-resident to appoint a VAT agent for providing certain services to a Bangladeshi unregistered person. Further, the law also requires that such VAT agent has to be an individual person as defined in the statute. No further clarity is provided till now as to what would be the role and responsibility of such an agent and how a non-resident entity would perform its VAT compliance through its agent. It is expected that the Government would grant reasonable time to the non-resident entities to implement the provision of law.
In addition, the following issues also require further clarity:
n The Government needs to formulate rules in order to determine the fair market value in case of transaction between related parties in the domestic region.
n The new Act has abolished truncated VAT rate and tariff valuation which may impact the business community and the consumers at large. Suitable measures need to be taken to safeguard the interest of common people.
n Various VAT exemptions are now being enjoyed by the businesses specially the export houses. Under the global VAT norms, such exemptions are converted under refund mechanism. Appropriate steps have to be taken to safeguard interest of the export houses as well as smooth transition to the global VAT mechanism.
Thus, the new VAT law still has room for improvement. It requires more deliberations with the stakeholders which can bring in the best VAT laws. Nonetheless, the benefits of the introduction of the new Act outweigh its flaws because such issues can be easily sorted out as the new Act has wider scope and provides much more clarity unlike the current Act.
It is not only in the interest of collection of higher revenue by the authorities but also to minimise the hassles with regards to being compliant with the law, that the Government has taken the step to introduce online based VAT system with the hope of integrating it in the system of businesses all across the country in the very near future. This will help in building an automated cohesive database for the authority and will also help in smoother running of businesses once the transition phase has been dealt with.
It is quite visible that the Government is attempting to take a forward thinking approach and is trying to not only adapt to a new perspective but also willing to walk with the fast moving competitive world. Changing the entire system is an enormous task, but this seems necessary given the requirement to grow in a world that's growing at an even faster rate.
Pulak Saha and Prabir Mitra are partner-indirect tax and
manager respectively at PricewaterhouseCoopers (PWC) in Kolkata, India and Shahadat Hossain is a senior associate at PWC
office in Dhaka.
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