The government is set to impose supplementary duty on major revenue-generating sectors, which now pay 15 per cent VAT, to offset the tax cut demanded by businesses.
Officials hope the SD might make up for the revenue loss following a reduction in the uniform rate of VAT under the VAT (value-added tax) and Supplementary Duty Act 2012 that is up to take effect from next fiscal year. On the other hand, the cut in the proposed 15 per cent unified rate will make it comfortable for the common businesses.
After implementation of the new VAT law from July 01, 2017, VAT rate for some key sectors will go down as they already pay 15 per cent VAT under the existing law, framed in 1991. And that will be compensated with the SD.
Cigarette and telecom are among the sectors that may see additional SD or surcharge following the government bid for counterbalancing the cuts in their VAT rate in the budget.
Recently, Finance Minister AMA Muhith said there would be a single rate of VAT under the new law.
Officials said there is no scope to introduce multiple rates under the new law as the digitized system has been prepared for a uniform rate of VAT.
The VAT online system would not work if the government introduced multiple rates under duress amid demand from the business community.
Cigarette, telecom, gas and cement sectors contribute 40 per cent to the aggregate VAT collection by the revenue board.
Earlier, the finance minister had said a one per cent cut in VAT from the major sectors would cause a loss of Tk 40 billion to the public exchequer.
Sources said the SD would be levied in a manner so that the reduction in VAT rate did not cause any revenue shortfall.
The government has a target to collect 40 per cent of its aggregate tax revenues from value-added tax.
"In case of reduction in VAT rate by 3.0 or 5.0 per cent, the SD would be imposed proportionately," said one official.
Surcharge might be imposed or increased on the key revenue-generating sectors, he added.
There will be some mechanisms to check revenue shortfall owing to reduction in the VAT rate, he said.
Excepting 15 services and 70 products, all other products and services are under 15 per cent VAT rate under the existing law.
The official said according to the taxation philosophy SD at local stages is usually imposed on sin goods like tobacco products.
Imposing SD-seen as a regressive tax--on all types of products cannot be a good practice in the taxation principle, the sources added.
Currently, SD is even slapped on mineral water, not to speak of hundreds of other goods.
In the new law, there will be no truncated base value, tariff value or package system of VAT.
The new law stipulates an exemption ceiling for small businesses having annual turnover Tk 3.0 million.
Businesses that are entitled to enjoy package VAT would be exempt from taxing under the new law.
Package VAT has been offered for the businesses whose sales amount to Tk 700,000 annually. But many of the business biggies are, somehow, enjoying the facility.
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