Revenue board won’t budge on scrapping package VAT

Despite protest by businesses, the National Board of Revenue (NBR) would prefer to scrap the package VAT system in the next fiscal year after finding poor revenue yield from the measure.
According to the available data of the NBR, its VAT wing receives Tk 150-180 million as package VAT annually from the nearly 12,000 small shops across the country while some hundred superstores pay Tk 400 million.
The NBR pointed out the package VAT system as a major loophole in the existing VAT-collection system.
It found consumption expenditure on retail stage, that is 67 per cent of country's GDP, mostly remaining out of the purview of tax net.
The board conducted the analysis after the businesses raised four-point demands, protesting a hike in package VAT this year and continuation of the system next year etc.
The new VAT and Supplementary Duty Act-2012 is scheduled to come into force on July 1, 2017, scrapping the system.
A team of the NBR, led by its chairman Md Nojibur Rahman, met with Finance Minister AMA Muhith Tuesday at his ministry to discuss the issue.
Officials said the finance minister instructed the NBR to sit with the businesses and adopt a flexible approach on crackdown and enforcing provisions of the existing VAT law 1999.  
Officials said the revenue board receives an insignificant amount of VAT from thousands of shops across the country under package VAT system, which is less than half the amount a handful number of superstores pay.
Superstores sell 52 per cent VATable items in their outlets and meet almost 1.0 per cent of the demand of the kitchen market and grocery shops, they added.
Most of the demand of the kitchen market is met by the retail shops other than superstores.
Such a poor amount of VAT collection from the shops and mall indicates the level of VAT evasion in that sector.
Under the package VAT, small shops can pay a lump-sum amount of VAT annually irrespective of their business volume. Business organisations in Dhaka and Chittagong city corporation areas with value addition worth Tk 15,555 or having annual sales of 0.7 million (monthly Tk 58,333) are under package VAT.
On the other hand, superstores collect VAT at a rate of 4.0 per cent from the consumers.
Recently, a section of traders staged street demonstrations and kept shutters down in protests against increase in package VAT in the current fiscal.
Small and medium-sized traders under the banner titled 'Old Dhaka's Byaboshaee Oikya Forum' (traders' unity forum) also threatened to enforce an indefinite strike unless the demand is met by November 20, 2016.
Talking to the FE, a senior VAT official said the agitation sparked after the VAT commissionerate in south and east zone launched a crackdown on VAT evasion in the businesses.
"During the move, the VAT officials found some businesses which are supposed to pay ten times higher VAT than the amount they paid to the public exchequer," he said.
The businessmen protested the package VAT after four months of the enforcement of the budgetary measure for this reason, he added.
In the budget for 2016-17, the NBR increased the package VAT two-fold for the businesses.
Another VAT official said package VAT is meant for small shops but many of the large shops having higher volumes of business transactions are demanding the facility.
VAT evasion is high due to those distorted systems, he said.
"Shops at city's Bashundhara city shopping complex, Jamuna Future Park, Dhaka New Market and other posh shopping complexes are demanding package VAT. This is unjust," he said.
In the new VAT law, the government has completely exempted the small businesses having up to Tk 3.0 million annual business turnovers from payment of VAT, he pointed out.
Small businesses will not have to pay VAT after implementation of the new VAT law so there is no justification for continuation of package VAT system, he said.
At the meeting, the NBR team also discussed proposals of businesses for reintroduction of turnover tax in manufacturing units in Dhaka and Chittagong city corporation areas, VAT exemption for plastic and rubber sandal up to Tk 120, bread and biscuit per kilogram up to Tk 100 etc.
The NBR data show businesses having up to Tk 8.0 million annual turnover (monthly Tk 666,000) pay Tk 40 million in VAT annually.
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