Businesses and consumers both may have to bear higher costs under impacts of a new VAT and SD law for reduced protection to domestic industries, the revenue authority forewarns.
The National Board of Revenue (NBR) made such forecast in a situation paper to be submitted to the government about effects of the Value Added Tax (VAT) and Supplementary Duty (SD) Act 2012 that is scheduled to come into force from July 1, 2016.
In the paper the NBR has pinpointed 10 major challenges stemming from implementation of the new law, along with their ramifications related to cost of doing business, consumer prices and government revenue earning.
The challenges include abolition of a wide area of tax exemption, withdrawal of package system of VAT, truncated-base system, tariff value and imposition of uniform rate of VAT at 15 per cent.
Officials said the NBR is poised to place the situation paper before Finance Minister AMA Muhith shortly, as spadework on the next budget, taxation in it is underway.
"The cost of doing business may rise and local industries may face stiff competition with imported products as level of protection for domestic industries will be shrunk," the NBR says in the situation-analysis paper.
The new VAT and SD act will replace the existing VAT law 1991. Officials said the situation paper has been prepared to alert the government on the impact of the new law.
"There will be some escalation in prices of consumer products and service as there will be 15 per cent VAT on products," one official said.
Under the new law, local industries will face a stiff competition as level of protection will be reduced.
Average level of protection will be cut to 23.3 per cent from 50.7 per cent, the NBR summary says.
The number of products having SD at the import stage is to be reduced to around 120 from the existing 1,600 which will severely reduce the level of protection for the domestic industries.
"Some 91.80 per cent tariff line (products) on the import stage will be out of the purview of the SD in the new law," the NBR wrote in the paper.
In the new law, some 1.5 per cent tariff-line products will have SD ranging from 20 per cent to 60 per cent while only 0.3 per cent tariff lines will face SD ranging from 150 per cent to 500 per cent, it said.
Currently, some 85 products are enjoying tariff value on import stage. The NBR finds the tariff value a distortion of the law.
The new law will scrap the tariff-value system and slap VAT at a 15 per cent uniform rate on the products.
Truncated base of value is another system in the existing law that is currently enjoyed by some 20 services. Under the system, VAT is imposed at 5.0 per cent, 5.5 per cent, 3.0 per cent rates on total receipt instead of 15 per cent of VAT.
The NBR will withdraw the facility in the new VAT and SD Act that might escalate the cost of doing business, the NBR summary says.
"The cost of projects in the Annual Development Programme (ADP) might escalate. It may also require increasing the allocation for the expenditure in the budget."
There would be no package-VAT system in the new law as the small businesses will enjoy an exemption ceiling at Tk 3.0 million.
Recently, Dhaka Chamber of Commerce and Industry (DCCI) and Bangladesh Shop Owners' Association demanded continuation of the package system on VAT for survival of the businesses as many will not be able to claim tax credit as per the new law.
With the implementation of the new VAT law, the taxmen will have to conduct a huge refund activity for the VAT payers who paid the tax at a rate of 15 per cent, the NBR situation paper said.
Another concern of the NBR is to ensure cyber security as the new VAT law will introduce e-payment, e-return filing and offer other facilitates in the automated system.
The new VAT law may hurt the revenue collection on temporary basis due to transition of the system from the existing law to new ones.
In a pre-budget meeting, NBR member (VAT policy) Barrister Jahangir Hossain said the government would lose Tk 30 billion in revenue because of reduction in the number of products subject to SD.
In the Fiscal Year 2014-15, the revenue board received Tk 170 billion from the sector but the amount may decline to Tk 140 billion under new VAT regime. However, officials hold the view that the effect won't last long.
© 2024 - All Rights with The Financial Express
