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Rethink multiple, package VAT rates, tariff value before switch

Business leaders, economists suggest weighing effects of new VAT law against existing one

FE Report | October 09, 2017 00:00:00

The government should rethink merits of the existing VAT law 1991, including multiple rates and package VAT and tariff value, before the pending switch.

Business leaders and economists came up with the latest suggestion Sunday, stressing a comparative analysis of impacts of the old and the deferred new VAT law on the economy and the consumer market.

They said impact analysis of the new VAT and Supplementary Duty (SD) Act on the national economy should be conducted by an independent and local research body to find its positive and negative impacts before enforcing the new law from July 01, 2019.

Representatives from the Centre for Policy Dialogue (CPD), Policy Research Institute (PRI), Bangladesh Economic Association (BEA), BRAC University, the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) made their respective recommendations on impact analysis of the new VAT law in an opinion-exchange meeting.

The Vat online Project (VoP) under the National Board of Revenue (NBR) organised the meeting at the Institute of Diploma Engineers Bangladesh in the city.

The new law, passed by Parliament in 2012, was scheduled to come into force from July 01, 2017. The government deferred the law by two years following instruction of the Prime Minister.

FBCCI president Shafiul Islam Mohiuddin told Sunday's opinion meeting that the law should be customised as there is no international uniformity of this law like customs law.

"National interest has to be prioritised. Businesses should not favour non-compliant businesses while NBR should not favour its corrupt officials," he said on a highly critical note.

The chief of the apex trade body further said the International Monetary Fund (IMF) and the World Bank (WB) are donors so the government "should not serve them".

Dr Ahsan H Mansur, executive director of the PRI, said regulatory impact assessment is necessary before framing a new law.

Solving the adverse impacts will be easier with the process, he added.

The policy analysts suggested that pared-down tax rates ought to be phased out gradually by devising strategies.

Regarding hike in power rates after implementation of the new law, he said power-tariff fixation is done by the government and it will decide the rates.

"We have estimated a loss of Tk 240 billion if Vat rate is cut to 12 per cent from 15 per cent uniform rate. Such a volume of Vat cannot be collected from non-compliant taxpayers, if compliant taxpayers pay at the reduced rate," he told the meet.

Uniform rate of Vat is necessary to avoid high amount of wholesale and negative form of refund to some sectors, he pleaded.

However, multiple or reduced rates can be enjoyed by the service sectors as their input credit is nominal 2.0-3.0 per cent, he added.

He said the system automation should be continued until 2019 under the VAT law 1991 to reduce harassment.

Dr Khondaker Golam Moazzem of CPD pointed out some points which he said should be addressed through the impact analysis rather than focus only on revenue collection.

Visible or invisible impact of single rate of Vat on the businesses has to be addressed.

Operational action research is necessary so that businesses can operate without facing harassment by the tax administration, he said in support of the suggestion for prior impact analysis.

Implementation of the new VAT law would need certain infrastructure that has to be prepared in the next two years, he observed.

General secretary of the BEA Dr Jamaluddin Ahmed said income tax and Vat rates both are high in Bangladesh while it is different in other countries keeping either Vat or income-tax rate high.

He proposed the formation of a revenue commission for conducting such research.

Senior Secretary of the Internal Resources Division (IRD) and NBR chairman Md Nojibur Rahman proposed the formation of a consortium comprising research entities, Dhaka University, CPD, PRI, BEA, BRAC, BUET, and BASIS for impact analysis.

A review group comprising ministries of commerce, and industries, Bangladesh Institute of Development Studies (BIDS) and Bangladesh Investment Development Authority (BIDA) will conduct periodical review of the analysis of the consortium, he added.

The VoP will extend support for the activity.

He said the NBR and the FBCCI will work as partners for providing better services.

NBR member (VAT policy) Jahangir Hossain said the new law can help in increasing tax-GDP ratio by 2.0 to 4.0 per cent.

It can also help reduce the size of informal economy.

Lack of good tax policy hinders better tax compliance, the NBR member added.

"We are ready to redesign the new Vat law on the basis of recommendations," he told the meeting, meant for finding a breakthrough in the standoff over the new VAT law because of strong opposition from the businesses.

Syed Mushfiqur, deputy director of VoP, gave a presentation on various aspects of the new law.

He said recommendation is required on some key issues like multiple rates, reduced rates, and mitigation strategies of adverse effects of the new VAT law.

Rezaul Hassan, NBR member and project director of VoP, said the pace of revenue collection under the exiting VAT law can be expedited with the implementation of the new law.

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