The International Monetary Fund (IMF) has sought assurance from the government that it would not 'water down' the VAT (value-added tax) Act to meet the demands made by the country's business community, officials said.
A government-formed committee, comprising businessmen and National Board of Revenue officials, reviewed the provisions of the VAT Act 2012 and submitted a report to Finance Minister AMA Muhith recently with recommendations for amendments.
Changes to several sections of the act have been suggested for, what the committee termed, the judicious execution of the law, sources said.
The parliament passed a new VAT in November 2012 in line with the conditions set by the IMF prior to the approval of $1.0 billion worth of extended credit facility (ECF).
The new VAT Act was scheduled to be enforced on July 1, 2015. But now the government is thinking to defer its enforcement by one year after necessary 'fine-tuning'.
"To be able to complete the sixth review we will need sufficient assurance that the VAT law will not be watered down," said IMF's resident representative in Bangladesh Stella Kaendera in a recent letter to Finance Secretary Mahbub Ahmed.
Officials at the Ministry of Finance (MoF) said the release of last two tranches of ECF funds worth US$280 million has become uncertain as the government has failed to make commitment on the implementation of the VAT Act and meet some other conditions.
The sixth instalment of the ECF was scheduled to be released in November last, while the final one for February.
An IMF team had completed the fifth review of ECF arrangement last September but the sixth instalment is yet to be released even after over two months of its due date.
Finance Secretary Mr Ahmed told the FE on Thursday night that an IMF mission is due in February. Clearance for their visit will be given soon.
"Everything will be resolved through discussion," he said in reply to a query about the possibility of release of the two instalments of funds.
He wouldn't elaborate further.
Officials said other differences between the government and the IMF include appointment of an international auditor for Bangladesh Petroleum Corporation (BPC) and injection of money into the troubled BASIC Bank.
They said last week the MoF sought prime minister's opinion regarding some conditions set by the Washington-based multilateral funding agency. The ministry is yet to receive any decision from the prime minister's office (PMO). So no reply to the IMF letter could be given, they added.
Sources said as the release of the sixth instalment of ECF was delayed by over two months, leading to delay in holding the seventh review, the IMF has suggested that the government seek a short-term extension of the tenure of the credit facility.
The IMF has also forwarded a sample of a letter needed to be submitted by the government for the short-term extension.
Officials said under the new VAT Act, the existing package VAT and truncated system of VAT and tariff-value system to determine the VAT amount would no longer exist -- it would be replaced with a uniform 15 per cent VAT.
Businessmen have strongly protested the move for introducing uniform VAT.
The new Act, however, exempted small businesses from paying VAT. Businesses whose total annual turnover remains below Tk 2.4 million will not have to pay this tax.
But businesses having sales between Tk 2.4 million and Tk 8.0 million will have to pay VAT at a rate of 3.0 per cent.
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