Flat 15pc VAT likely to replace multiple rates from FY ‘24

Government's revenue authority has moved to close the scope of levying VAT at multiple rates and keep 15 per cent as a flat rate to be included in product prices, sources said.
Once ratified in the budget for the forthcoming fiscal 2023-24, the value-added tax collected from consumers at varied rates, such as 5.0 per cent, 7.5 per cent, 10 per cent, and specific tax would stand nullified in phases.
"The measure is being taken to accelerate revenue growth and bring discipline in VAT collection," says one official, adding that the VAT now collected from consumers will be merged proportionally in product prices.
Such multiple VAT rates are creating distortion in the collection system, official sources said, and reports say there are also leakages, that is, the tax is charged from the buyer but it loses way to the exchequer.
The VAT wing of the National Board of Revenue (NBR) foresees that revenue from top ten contributing sectors, including tobacco, is unlikely to increase equally in coming years as some manufacturing sectors have been deeply hurt by the rising energy prices, they said.
The revenue board also sees less possibility of increase in revenue collection from cigarettes as desired, the officials added.
"…..it may not be possible to increase the price due to complex intra-relation among different segments of cigarettes," states a paper prepared by the VAT wing after a meeting of the 'coordination committee on implementation of policy actions regarding IMF program 2022'.
The meeting on stocktaking of the revenue situation-especially of the all-expansive indirect tax--was held on March 2023.
The NBR collects 30 per cent of its VAT revenue from local sources, particularly from cigarette manufacturers.
Former NBR member of the VAT wing Farid Uddin, however, suggests that VAT rate should not exceed 7.0 to 8.0 per cent in a country like Bangladesh in view of its state of economy.
He, however, prefers a unified VAT rate rather than existing multiple rates, except some special cases.
"VAT at a rate of 15 per cent is not a justified one in time of rising cost of living. It would hit the poor people in society hard," he said.
He feels that the government should bring down the VAT rate and introduce integrated system of revenue mobilization.
In the original VAT law, the government, following recommendation of the International Monetary Fund (IMF), had tried to introduce 15-percent unified rate.
Later, the NBR amended the law and incorporated multiple rates following steep opposition from the business community.
A senior NBR official says the revenue board has found it difficult to narrow the tax exemption within the shortest period of time as it is already committed to tax exemptions until some definite period to a number of industry-intensive sectors.
In most cases, the tax-waiver facilities would remain valid until 2025-26, he thinks.
He says the government will have to keep some of the tax benefits constant for the time being despite having higher target for achieving growth in tax-revenue collection.
In the meeting, the VAT wing has disclosed its revenue- collection targets from FY 23 to 26.
For FY 2023, the target has been set at Tk 1.21 trillion followed by Tk 1.43 trillion in FY 24, Tk 1.70 trillion in FY 25 and Tk 2.03 trillion in FY 26.
Officials said the NBR already started imposing taxes on the sectors enjoying tax exemptions for a longer period of time.
In FY 2021-22, the VAT wing withdrew tax exemptions on production of concrete ready-mix product, refrigerator, mobile- phone manufacturers, and meditation and first-class non-AC intercity bus services.
NBR member at the VAT wing Dr Moinul Khan said the government is focusing on bringing discipline in retail VAT collection by installing Electronic Fiscal Device (EFD) on a massive scale.
"Every year, the NBR would install 60,000 EFD in the retail shops in Dhaka and Chattogram and it has a target to install 0.3 million devices in next six years," he says about digitizing the existing system.
Until January 2023, some 9097 EFD had been installed in different shops.
VAT collection from retail sector would increase significantly after full-fledged installation of EFD, he hopes.
The businesses would also get relief from submitting VAT-related documents to the NBR separately as the EFD would be connected to the NBR server to transmit real-time data.
A large number of VAT-registered units are retail and service sectors where leakage of VAT payments is considerably high.

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