Draft VAT law gets cabinet nod with major changes

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FE Report
The cabinet passed the draft law of Value Added Tax (VAT) Monday with major changes including withdrawal of package VAT, tariff value and the 'truncated system' under which small and medium businesses enjoy special reduced rates.
Instead, the draft law has offered special tax exemption to small businesses having annual turnover below Tk 2.4 million.
After implementing the new law, these small businesses do not have to pay VAT on their sales.
The law will come into effect from July 2015 to help businesses take preparations to accept the new measures.
The draft law will be placed before parliament in the upcoming budget session for 2012-13. It will replace the existing law framed in 1991.
Officials said some rules regarding registration and submission of returns would come into force from the upcoming fiscal.
They said International Monetary Fund (IMF) tagged the condition to approve a new VAT law by this fiscal to disburse US$ 1.0 billion in loan under Extended Credit Facility (ECF) fund.
The National Board of Revenue (NBR) prepared the draft VAT law following instruction of the IMF to replace the existing 'distorted' law.
The draft law has scrapped all the variable rates of VAT and proposed to introduce a flat rate 15 per cent on consumption and businesses.
Talking to the FE, Ahsan H Mansur, a member of VAT law drafting committee and executive director of Policy Research Institute (PRI), said small businesses would be exempted from the VAT net after introduction of the new law.
"The draft law scraped the variable rates of VAT and imposed a 15 per cent rate. With the same rates, the scope of taking special advantages by some businesses will be minimised," he said.
The new law will be business-friendly and investment- friendly, he added.
FBCCI president AK Azad said there are many 'inconsistencies' in the existing VAT law.
"The government should address these inconsistencies in phases," he said.
Dr Mansur said some of the measures would come into effect from the upcoming fiscal including adopting IT- friendly systems, registration and return submission.
The new VAT law has been framed in conformity with the international standards, he added.
It has extended VAT net to all of the service sectors, he added.
In the draft law, a copy of which has been obtained by the FE, the government kept a provision of confiscating properties and freezing bank accounts in cases of evasion of tax, failure in submission of return and furnishing required documents sought by VAT officials.
It has amended 33 rules of the existing law to make it business-friendly. The draft VAT law also withdrew the provision of arresting businessmen which was proposed in the first draft of the law.
A high-power six-member committee, headed by Economic Affairs Adviser to the Prime Minister, Dr Mashiur Rahman, finalised the draft law. NBR chairman Dr Nasiruddin Ahmed was the convener of the committee.
It also comprised Dr Ahsan H Mansur, adviser of the FBCCI Jahurul Huq, Religious Affairs Secretary Kazi Habibul Awal, and a representative of the law ministry.
Earlier, the NBR placed the draft VAT law before the cabinet for approval on February 6. The cabinet sent it back for further review.