The International Monetary Fund (IMF) suggests the government to take necessary preparation to launch the shelved VAT (value added tax) law 'in the near future'.
In the face of a strong opposition from businesses, the government, willy-nilly, backtracked on its move to enforce the new VAT law in fiscal year (FY) 2016-17 alongside the new budget.Â
In doing so, however, it breached a pledge made to the global lender in order to get US$1.0 billion Extended Credit Facility (ECF) loan.
Finance Minister AMA Muhith in his budget speech last Thursday announced a full-fledged implementation of the new VAT law from FY 2017-18. The government's U-turn  over the VAT law is believed to be because of the tough protest from the business community.Â
"We strongly advise the authorities to complete the necessary technical preparations for a successful launch of the VAT law in the near future," IMF Resident Representative in Dhaka Stella Kaendera told the FE in an e-mail interview when her attention was drawn regarding latest developments about the VAT law enforcement.Â
She argued that the launch of the new VAT law is critical to improving revenue collection in the most effective way possible while protecting the poor.Â
The government needs additional revenues for much-needed increases in public investment and social spending, without undermining fiscal sustainability, Ms Stella noted.
"A well-designed communications strategy will be essential to highlight the tax's features and benefits," she added.
The government framed the VAT and Supplementary Duty (SD) Act 2012 in line with the suggestion of the IMF. Enforcement of the new VAT law will introduce a uniform rate of VAT at 15 per cent for all businesses, save small ones.
It faced repeated agitation from the businesses before announcement of budget for next fiscal year as it had moved to implement the new VAT law in line with the commitment made to the Washington-based lender. Â
The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), the apex trade body of the country, had urged the Prime Minister to intervene, as they said the new VAT law was formulated bypassing the recommendations of a joint committee.
The joint committee, comprising officials of the National Board of Revenue (NBR) and the FBCCI, gave recommendations in January 2015 after examining VAT systems across the world. It placed seven-point recommendations, which still await implementation. Â
The recommendations include raising VAT-free turnover ceiling to Tk 3.6 million, fixing VAT rate at 3.0 per cent for turnover up to Tk 15 million, setting VAT at 4.0 per cent for traders who are unable to obtain rebate, and at 2.0 per cent for those who sell products at fixed rates.
Many of the local businesses are yet to develop automated accounting system to claim input credit, which is the main benefit of the new VAT law, according to officials.
The enforcement of new VAT act will raise cost of doing business substantially for those businesses who cannot claim tax credit, they said.
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