In an article titled 'VAT reform is all about procedural improvement', published in this daily on Sunday (August 02), it was argued that VAT reform is synonymous with procedural reforms. I have further argued that procedural reform has two dimensions. Firstly, the existing procedures in the VAT system in this country are not easy. Secondly, there are no procedures in many cases in the VAT system.
It was argued there that many questions about VAT on house rent are not answered by the existing procedure. Here the attempt is to show how the procedure proves difficult for the common people to understand.
VAT is imposed on goods and services. Most of the services have been defined in the VAT system. House rent is considered a service. The title of this service is 'Lesee of Places and Establishments'. It is defined as "lesee of places and establishments mean any such individual, institution or organisation who or which is authorised to use any such place or establishment that is not used for residential purpose for a certain peroid in exchange of consideration. Aquisition of such a right that can be renewed after certian period shall also be included in it." Firstly, this definition is difficult to understand. General people in one reading do not understnad what this definition says. Again, this definition has close similarity with another definition of the VAT system. That is 'izaradar'. "Izaradar means any individual, organisation or institution having authority of access to a place or establishment or any immovable property in exchange of consideration and the person who collects toll, fee, hasil or khas in such place or establishment on his own management without giving izara shall also be included in it." It is very difficult for the common people to distinguish the meaning of these two definitions.
The rate of VAT in our country is 15 per cent but there are some truncated rates. These truncated rates are mentioned in another instrument. SRO No. 182-Law/2012/640-VAT, Dated: 07 June, 2012 of the National Board of Revenue (NBR) mentions the truncated rates. Here, truncated VAT rates on 19 services, including 9.0 per cent house rent VAT, has been mentioned. People are to consult this instrument to know the rate of house rent VAT. It is very difficult for the common people to be familiar with so many instruments to know the VAT proedure of a single service.
Some house rents have been exempted from VAT. These have been mentioned again in another SRO. SRO No. 119-Law/2015/725-VAT, Dated: 04 June, 2015 of the National Board of Revenue (NBR) mentions a few house rents where there is no VAT. So, consultation of another SRO is needed to know on which house rents VAT has been exempted. It is not easy for the common people to be familiar with so many legal instruments to know the VAT procedure of a single service exhaustively.
The SROs are scattered in different places of VAT literature. So, all these should be brought together and placed sequentially. The laws should be written in easy language. On each VATable economic activity, all the provisions related to VAT should be mentioned in one document, so that a person undertaking an econimic activity can get all provisions of VAT in a single document. A person who does not do any VATable economic activity other than renting house for his office does not require knowing VAT procedure on other exconomic activities. Such procedural reform can make the VAT system business-friendly and revenue-friendly to a great extent.
Dr Md Abdur Rouf is Director of the Central Intelligence Cell and Deputy Project Director of the VAT Online Project, National Board of Revenue (NBR). Opinion expressed in this article is of the writer and does not reflect his official position.
roufcus@yahoo.com
