The country's apex chamber body has urged the government to amend the existing Value Added Tax (VAT) law, instead of replacing it with a new one, following successful enforcement of the current one since 1991.
The chamber body has alleged that the new VAT law, passed in parliament in 2012, has not been framed in line with the recommendations of the business community. Rather suggestions of the International Monetary Fund (IMF) have been followed in preparing it.
The new VAT law is scheduled to be enforced from July 1, 2015, by scrapping the existing VAT law.
The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) recently made the request to Prime Minister Sheikh Hasina, Finance Minister AMA Muhith, Commerce Minister Tofail Ahmed, Planning Minister AHM Mustofa Kamal, PM's Economic Affairs Adviser Dr Mashiur Rahman and other ministers concerned through demi-official (DO) letters.
It also urged National Board of Revenue (NBR) chairman and Internal Resources Division (IRD) secretary Ghulam Hussain to consider the matter.
However, the latest plea of the apex chamber surprised the Finance Minister.
Responding to the request letter, the finance minister wrote that the government has started negotiation with the trade bodies on the issue since 2009.
"I do not understand why they have not raised the issue so far despite several discussions with them in this regard. Such an opposition at this stage is upsetting," he wrote.
The finance minister also opined that the law is necessary, not only to meet the conditionality of IMF for disbursing loan under Extended Credit Facility (ECF).
Meanwhile, the NBR's VAT Wing is in quite uncomfortable position over procurement of the software, vital for VAT automation, after the Cabinet Purchase Committee sent back the relevant tender documents last month. It has instructed the wing to invite re-tender, identifying faults in tender process in selecting a company.
Talking to the FE, the NBR chairman also acknowledged that standard tender process was not properly followed in the case. "International tenders should follow two-tier process that has not been followed in that tender," he said.
A senior VAT official said implementation of the new VAT law may face at least one year delay, as NBR will have to go through the long process again for inviting a fresh international tender.
Officials said the latest opposition by the apex trade body might trigger further uncertainty over enforcement of the new law from the next fiscal.
FBCCI sources said the business leaders have protested the new VAT law in different occasions, after they found that the recommendations of the private sector have been ignored in it.
The new VAT and Supplementary Duty Law 2012 aims to automate VAT collection and payment system, scrap the existing multiple rates of VAT by imposing 15 per cent flat rate. However, there will be option to take refund of the paid VAT, if the businesses have automated system.
Currently, most of the businesses in Bangladesh are following manual system for their business transaction, causing higher VAT evasion.
In the letter, FBCCI said the existing VAT law has been working smoothly during the last 23 years, and it contributed to the significant increase in VAT collection.
"It is not understandable for us why this successful law needs replacement despite making contribution to the VAT collection growth, manifold higher than that of the country's annual economic growth," FBCCI president Kazi Akram Uddin Ahmed said in a letter.
Aggregate VAT collection increased to Tk 499.56 billion in the fiscal year (FY) 2011-12 from Tk 17.35 billion in FY 1991-92. The government has set a target of Tk 565 billion for VAT Wing in FY 2014-15.
FBCCI said both VAT-payers and taxmen have become used to with the existing VAT law. Imposing the new VAT law will be totally unrealistic, and it might create difficulties in enforcement.
The apex chamber urged the PM to actively consider the issue and give directives for creating a favourable environment for businessmen for easy VAT payment.
It alleged that some over-enthusiastic officials proceeded implementation of the new law following suggestions of IMF. But many of the VAT officials and businessmen were in favour of amending the existing one.
"The government high-ups have wasted their valuable time for the new VAT law. The law ignored recommendations of the private sector representatives," FBCCI mentioned.
The apex chamber said it is also in favour of scrapping the truncated-base and tariff value system, detected as distorted, in phases. Total replacement of the existing VAT law is not required for scarping the faulty systems, it added.
FBCCI made four-point proposal to the PM, including carrying out a survey to know taxpayers' opinion regarding the new VAT law. If the survey finds that the taxpayers are not interested in the new law, the government can backtrack from the move to enforce it.
The apex trade body also urged the government to incorporate positive provisions of the new VAT law into the existing law, and amend it (the existing one) by forming a high-powered expert committee, comprising private sector representatives.
FBCCI also recommended launching a project for VAT automation under Public-Private Partnership (PPP). It also proposed initiating a special scheme to eradicate corruption in the VAT department, so that businesses can pay VAT easily.
The organisation assured the government of providing its all-out cooperation to amend the existing VAT law and build an effective VAT administration.
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