Looking forward to new tax and VAT laws and policies
March 08, 2011 00:00:00
Prices of food and essential commodities in Bangladesh and in the international market are increasing day by day. Few days back, tens of thousands of people took part in a rally in Delhi, India to protest food price hike. Indian Prime Minister Manmohan Singh has described the price-hike as a serious threat to India's growth. On the other hand, Bangladesh's stock market debacle could not be repaired despite several steps taken by finance ministry and Bangladesh Bank. In addition, anti-government movements in parts of Middle East and North Africa have created a lot of tensions and uncertainties. Political analysts predict China may also face pro-democracy movements in near future. As per US President Barak Obama, the world is witnessing history unfold.
The political troubles and uncertainties may put the developing countries including Bangladesh into economic problems in the days ahead. At the moment, it is very difficult to say where the end is, but the situation is really alarming. Moreover, the entire world has not yet been able to overcome the global economic downturn completely. Today's reality is that a number of overseas Bangladeshi workers are compelled to return home. If such a situation continues for long, the inflow of foreign remittance from our overseas workers will decline substantially. It may also affect our imports and international businesses.
The oil prices have also been rising in the international market. In order to face this problem, the Indian budget for fiscal 2011-12 has already proposed to increase oil prices and there are pieces of news that a large quantity of diesel is being smuggled out from Bangladesh to neighbouring India and Myanmar. For this, our rice production may come under threat on one hand and transportation cost will be increased, on the other. As a consequence, the prices of foods and essentials will further increase.
Our government is sincerely fighting poverty and trying to develop Bangladesh as a mid-income country by 2021; but the price-hike of food item has made the life of unemployed and low income group miserable. There is no denying that internal revenue collections must be increased to solve the problems of power, communications, traffic jam, river navigation etc., with top priorities, but the most serious worry for the moment is the high price of food items because the whole world is now suffering from price-fever. In this context, the big challenge for the present government of Bangladesh is to set priority of spending areas and balance between the long-term goals and the daily needs.
The National Board of Revenue (NBR) has drafted new Tax and VAT laws. It has also started traditional pre-budget discussion for getting opinions and suggestions from the various stakeholders. The purpose of this is to find out ways and means to increase government's domestic revenue earnings and minimise public sufferings while paying taxes. In fact, the developing countries around the world are now trying to increase internal revenues and depend less on foreign grants and loans.
It seems that efforts have been made to simplify the proposed tax law which is a welcome step. The Income tax Ordinance 1984 is proposed to be renamed as Direct Tax Act, 2011. In this draft, wealth tax has been re-introduced to ensure social equity and justice. This seems a right step but adequate care should be taken so that in the name of property survey, people's earning and investment spirit are not frustrated and unnecessary complexities do not arise. Complex tax assessment system means public suffering and threat to economic growth. For this purpose, before passing this act, things should be discussed by the public representatives who are really accountable to the people and in this regard, the NBR has rightly placed the matter to the parliament members for discussion.
It is also welcome that a single VAT registration has been proposed for the companies having separate units in different areas. But the main short-coming of the newly drafted VAT Act is that it does not have any complete definition of the VAT itself. This will give chance to the VAT officers to misinterpret the law. Section 2(117) of the draft act describes that VAT means the tax imposed under section 18; but section 18 describes matters of imposition of VAT on taxable supplies and imports which do not provide a definition of VAT. Whereas, Article-31 0f Bangladesh's Constitution guarantees that every citizen will enjoy protection of law by the state to protect his/her property. So, the new VAT law should have clean and specific definition of the basic terms to enable the citizens to get protection of law, in case of any suffering.
The government has taken an initiative to make new Tax law after twenty-seven years of Income tax Ordinance 1984. So, adequate care should be taken to avoid repeated amendments and changes. For this purpose, it will be better, if the act gives legal directions only, without mentioning any amount of taxes because the present and future value of money is not the same. For example, under section 68 (a) (i) advance income tax (AIT) of taka two thousand per square meter of floor space shall be paid by a real estate business at the time of execution of sales deed registration. In future, the situation may demand to change this amount and in that case, it will be required to amend the law. So, the amount of taxes may be incorporated in the Finance Act which is passed every year. The act may only say "The government will prescribe/declare the amount of taxes by Finance Act/ rules/SRO."
The natural human behaviour is to earn and spend. He or she also spends more who earns more. Whether the money is legal or illegal, white or black ultimately, it comes in the market for consumption of goods and services. So, the tax policy may give more emphasis on collecting AIT and VAT at the import and selling stages. This is a huge area of collecting taxes and the government should target more taxes, not more tax files. This policy may be applied to all goods and services except foods.
It is time to boost business and self-employments and as such, the government should open all the doors of the economy to facilitate its citizens to make money in a legal way, because money creates job and alleviates poverty. Even high prices will be tolerable, if per capita income is increased. The Indian budget for fiscal 2011-2012 has declared tax exemption up to the income of Rs 180,000 which is equivalent to Bangladesh Taka 280,000 and this has been done to keep the common people happy. It has also declared to introduce a simple tax return form, 'Sugam', for small tax payers. Qualifying age for senior citizens has also been reduced to 60 years. Our policy-makers may consider these examples while preparing the next tax and VAT policies. In this regard newly imposed VAT on commercially rented floor space may be re-considered because it will discourage the new comers who want to be self employed. Apart from this, on principle, value added tax cannot be imposed on any goods or service until and unless it adds any additional monetary value to that.
Tax and VAT policies play significant roles in keeping the prices of food items and other essentials within a tolerable limit and face unexpected probable future economic and unemployment threats. The people want infrastructure developments but price-hike of foods directly hit the day-to-day life of the common people. In view of this, food prices may be identified as the most burning issue for the moment and a balanced policy of paying taxes aiming to increases government's over all earnings on one hand and control the food prices on the other, can be decleared. The government may also issue Infrastructure Bond to raise additional fund and try to gear up public private partnerships (PPP) for the infrastructure development. However, in order to boost private-public partnerships (PPP), more emphasis may be given to the 'unsolicited proposals' under clause 2.7.2 of the 'Bangladesh Private Sector Infrastructure Guidelines'. This is because businessmen understand the prospects and financial viability of a project better than the bureaucrats. It is quite natural that private investors may show less interest to a 'solicited project' which is prepared by bureaucrats, with a controlling attitude. As such, PPP policy should talk to the language which the investors would like to hear.
It is true that the international market cannot be controlled by our government alone; but a democratic government has the responsibility to take pragmatic steps to reduce public sufferings and try to keep the prices of food items within a tolerable limit. So, our tax and VAT policies should aim to minimise business taxes and hassles because any amount spent by the business is added to the prices of goods. It is time to give more emphasis on large tax payers avoiding small retail shops. Though, in reality, the tax authority is reluctant to put pressure on small shopkeepers but that is not enough. The government should give legal protection to the low income group so that tax inspectors are not able to harass them. Moreover, the government should promote their business by arranging micro-credits for them.
Our tax officers are educated, trained and well organised but power hungry. Most of them have a general tendency to treat the businessmen as loan and tax defaulters. Few of them create things unnecessarily complex in the name of inspection, survey, checking, hearing etc. It is very unfortunate that even after forty years of independence, tax and VAT laws and policies are mostly prepared by them and the ministers approve the same only. Members of Parliament are known as lawmakers but they hardly draft any law in the real sense. So, in order to make the fiscal policy business-friendly and cure our long lingering economic ailments, members of parliament are needed to be involved in formulating strategy of paying taxes. We can expect that public representatives will protect the public interest in a better way because whatever they do they have to answer the people and face the consequences.
Democracy means doing well to the people and protecting public right. As such, a political government should have its own think-tank comprising loyal politicians and professionals who will watch the global economic trends, do necessary surveys and formulate the basic policies of paying taxes. However, the NBR as the tax collecting organ of the government should try and work to increase government's overall revenue earnings but while collecting taxes, people should be convinced that things are justified and their constitutional rights are well protected.
The writer is a fellow member of ICMAB. He is a freelance Management Consultant and treasurer of the Institute of Management Consultants of Bangladesh, and can be reached at e-mail: shaykhul@radiancegroup-bd.com
