New VAT law and voiceless consumers

The new value added tax (VAT) and supplementary duty (SD) Act-2012, set to be enforced from July 01 next, has created serious concern among businesses. The chamber bodies and trade associations have been vocal against some provisions of the law that, according to them, would seriously hurt their business interests.
The businesses are more concerned about the mode of their own VAT payments. The new law provides for turnover-based VAT payment and uniform VAT rate. But the trade bodies want truncated value-based VAT system with provision for multiple VAT rates.
Yet another party--- the general consumers--- here would have to bear the brunt of the new VAT law, which provides for payment of a uniform VAT rate at 15 per cent at the retail level and withdrawal of VAT exemption in the case of all types of products.
The consumers are now paying VAT at varying rates, from a minimum of 2.0 per cent to a maximum of 15 per cent. For instance they are now paying VAT at the rate of 5.0 per cent on their monthly electricity bill. The rate will be 15 per cent from July next if the new law is enforced. The electricity bill of general power subscribers, following a recurrent hike in power tariff in recent years, has gone up substantially. The hike in VAT rate would make the electricity use far more expensive. In most cases, they might also find their purchases more expensive than before from the first day of the next financial year.
More importantly, all involved with manufacturing and trading, as a matter of tradition in this part of the world, would pass on to the consumers the VAT amount to be levied on the items that have so far enjoyed exemptions. So, there exists a strong fear that the price situation would come under pressure following introduction of the new VAT law. The high officials of the National Board of Revenue (NBR) do also admit that there could be some inflationary pressure. But they say the effect on the new VAT law on price situation would be marginal. However, they may prove wrong.
The chambers and business associations have been making frequent parleys with the Finance Minister and the NBR honchos to continue with the existing multiple VAT rates and truncated value-based VAT recovery system.
But Finance Minister AMA Muhith until now is sticking to a uniform VAT rate and turnover-based VAT system. However, the presentation of the national budget for the next financial year (2016-17) is still a few weeks away. One cannot rule out the change of mind of the government. The Finance Minister has already softened his stance on VAT imposition on small and medium enterprises (SMEs). He has recently made it clear that SMEs having annual turnover up to Tk 0.8 million are enjoying the package VAT system and the facility would continue even after the enforcement of the new law.
The businesses have been making all-out efforts to ease their VAT burden and simplification of VAT payment system. But in the whole process the consumers who would have to shoulder most part of the higher VAT rate load are just mute spectators. They don't have any voice. Nor there is any organization to speak for them. The Consumers' Association of Bangladesh (CAB) has not spoken a word about the possible impact of new VAT law on the price situation.
There is a faint hope that enforcement of the new VAT law may be delayed for some more time. Though the Finance Minister and the NBR high-ups are upbeat about the law, taxmen operating at the field level are found to be apprehensive. They have already communicated to the headquarters that they are not 'fully' prepared for enforcement of the new law. The officials concerned went through training programmes, arranged to familiarize them with various provisions of the law and their implementation process. But the officials say that those were not enough and they need some more time.
However, the Ministry of Finance, it seems, is in a hurry to enforce the law that, according to an analysis done by the NBR, would help it fetch 15 to 20 per cent more revenue from VAT from internal sources and around 4.0 per cent more from imports.
But there is another side of the story. Because of withdrawal of VAT exemptions and rebates, the government would have to spend a substantial amount on account of VAT payments against purchase and import of goods for various development projects. That would lead to increase in the cost of projects.  The government should do some arithmetic on this account prior to the implementation of the new VAT law.
With the tax revenue from imports remaining stagnant and expansion of income tax net making slow progress, the government is left with no option other than focussing more on VAT.  VAT is now the main source of tax revenue for the government since it is easier to collect. But there are downsides when reliance on this becomes abnormally high. The government does need to keep in mind this hard truth.
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