The devil is in the detail
Mahmudur Rahman | Thursday, 3 March 2011
Mahmudur Rahman
It now seems to be a practice for new governments to avoid unpopular taxation measures during the first couple of years of their tenure, bring in the biting proposals in the middle years and take the foot off the accelerator in its final year. The third budget of this government seems to be heading that course, at least as far as the middle years are concerned. The proposed new measures to bolster government revenue collections are interesting, to say the least. When the government announced the current fiscal year's budget, it made it clear that the registered tax-payers would be made to submit their returns by the NBR. It also declared that the tax net would be widened as more people in the country now have incomes that are taxable. The Finance Minister's blunt statement that the figure of 3.0 million tax payers in a country of 150 million is simply not acceptable, is nonetheless a fair point. Revenue generation has exceeded targets in the first seven months of the current fiscal though the specific reasons for the increase is still not as clear as one would like it to be. In general, the view is that streamlined procedures, transparency, user friendly systems and a greater understanding by tax payers have essentially contributed to this regime. Further, the achievements or not in the area of widening the tax net hasn't been clearly elaborated so as to make sense of whether it is activity, numbers of new VAT registration or new items incorporated or to be incorporated. The Value Added System is scientific and has worked well in ironing out the grey areas that traditional tax regimes suffer from. It isn't without its loopholes and plenty of creative minds to take advantage of them. It's the acceptability of any system that will define its workability rather than forced acquiescence through the fear factor. The positives of the system such as avoidance of multiplicity in taxation as well as the option of drawback hasn't been explained well enough or utilised. For example, few organisations realise that they can claim drawback on official telephone calls and other utilities not to mention the relief in converting raw material in to finished product. Albeit, the numbers don't always stack up but then in the true 'value added' system, the input tax is always going to be lower than output tax. There appears to be a change in the VAT laws on the cards. An aspect of this is the introduction of what appears like a wealth tax. It would appear that if individuals own property that is considered to be 'excessive', a tax would be imposed on them. What is meant by 'excessive' hasn't been publicly explained but there could well be an immediate impact on two sectors of the economy-the luxury offerings of the real estate industry and the sales of luxury cars. On another note, few individuals register these 'excess' assets in their own names and on the flip side, those who are living beyond their means hardly ever have anything in their asset list. One hopes the new laws will take these into account when such calculations are made. (The writer can be reached at mahmudrahman@gmail.com)
It now seems to be a practice for new governments to avoid unpopular taxation measures during the first couple of years of their tenure, bring in the biting proposals in the middle years and take the foot off the accelerator in its final year. The third budget of this government seems to be heading that course, at least as far as the middle years are concerned. The proposed new measures to bolster government revenue collections are interesting, to say the least. When the government announced the current fiscal year's budget, it made it clear that the registered tax-payers would be made to submit their returns by the NBR. It also declared that the tax net would be widened as more people in the country now have incomes that are taxable. The Finance Minister's blunt statement that the figure of 3.0 million tax payers in a country of 150 million is simply not acceptable, is nonetheless a fair point. Revenue generation has exceeded targets in the first seven months of the current fiscal though the specific reasons for the increase is still not as clear as one would like it to be. In general, the view is that streamlined procedures, transparency, user friendly systems and a greater understanding by tax payers have essentially contributed to this regime. Further, the achievements or not in the area of widening the tax net hasn't been clearly elaborated so as to make sense of whether it is activity, numbers of new VAT registration or new items incorporated or to be incorporated. The Value Added System is scientific and has worked well in ironing out the grey areas that traditional tax regimes suffer from. It isn't without its loopholes and plenty of creative minds to take advantage of them. It's the acceptability of any system that will define its workability rather than forced acquiescence through the fear factor. The positives of the system such as avoidance of multiplicity in taxation as well as the option of drawback hasn't been explained well enough or utilised. For example, few organisations realise that they can claim drawback on official telephone calls and other utilities not to mention the relief in converting raw material in to finished product. Albeit, the numbers don't always stack up but then in the true 'value added' system, the input tax is always going to be lower than output tax. There appears to be a change in the VAT laws on the cards. An aspect of this is the introduction of what appears like a wealth tax. It would appear that if individuals own property that is considered to be 'excessive', a tax would be imposed on them. What is meant by 'excessive' hasn't been publicly explained but there could well be an immediate impact on two sectors of the economy-the luxury offerings of the real estate industry and the sales of luxury cars. On another note, few individuals register these 'excess' assets in their own names and on the flip side, those who are living beyond their means hardly ever have anything in their asset list. One hopes the new laws will take these into account when such calculations are made. (The writer can be reached at mahmudrahman@gmail.com)