VAT waiver facility with utmost caution

The new VAT (value added tax) law that came into effect from July 01 last has fulfilled a long-standing demand --- full waiver of VAT on utility service bills --- of the exporters. Naturally, the exporters were happy since the exemption would help reduce their cost of doing business, to some extent. But the guideline issued lately by the National Board of Revenue (NBR) on such exemption is likely to dampen much of their enthusiasm. They might find the conditions set in the guideline for availing the facility rather troublesome. Earlier VAT waivers for utility services were there but at different rates, not full exemption.

It is understood from the conditions set in the guideline in question that the exporters would have to install water, gas and power connection meters exclusively for their export-oriented manufacturing units. Then again, the exporters concerned will have to submit their applications for VAT exemption to the relevant VAT zones by the 15th of each month to avail the exemption facility. The facility would be granted only after detailed inspection and scrutiny by the relevant offices of the VAT commissioners. The export performance of the units wanting to avail the exemption would also be evaluated by the tax authorities.

However, the reasons for the NBR being so extra-cautious about possible abuse of VAT exemption need to be understood. Incidence of misuse of fiscal waivers and exemptions are aplenty. Stories about industrial units pilfering gas and electricity in connivance with an unscrupulous section of employees of the relevant state entities are also published in the media often. Similarly, abuse of bond facility by a section of so-called exporters is also a regular incident.

Only a couple of days back, the customs intelligence with the help of the Rapid Action Battalion raided some shops in the old part of Dhaka and recovered a huge volume of fabrics imported under bond facility. It is just not fabrics, various types of goods imported duty-free by the 'export-oriented' industries have been sneaking into the local market regularly. Such an evil practice, however, has been not only depriving the government of a sizeable amount of revenue but also hurting the domestic industries that are producing the similar kinds of goods.

Thus, the taxmen are expected to be cautious while granting the VAT exemption facility that could be abused easily. However, extreme level of rigidity on the part of the NBR might dilute the very purpose of offering the facility. The monthly submission of applications for availing the facility along with lots of documents has all the potentials of creating a lot of hassle for the export-oriented industries.

So, it would be prudent for the tax authorities to hold discussions with leaders of the relevant sectors to help make the facility available sans hassle. The issue of its possible abuse could also be discussed. There is no denying that VAT waiver would cost the tax authorities a substantial amount every year, but the fact remains that such fiscal concessions and subsidies in various forms are extended to exporters in most countries to help make the latter competitive in the international market.