VAT-able price in the new VAT law

THE new VAT law will be effective from July 01, 2017. It is an improvement on the current law.
VAT is imposed on the price of goods or services. This price is called VAT-able price. If the VAT-able price is high, there will be more VAT and contrarily, if the VAT-able price is low, there will be less VAT. The sellers tend to show lower VAT-able price but the VAT authorities tend to argue for a higher VAT-able price. So, VAT-able price is very important in any VAT system. With regard to VAT-able price, the new law incorporates some easier provisions than these have been so far.   
VAT is collected on the supply of goods and services. Goods or services are sold in exchange of money payment. VAT is imposed on the sale price. At the price in which a seller sales goods or services is not always VAT-able one under the current VAT law. The price is often fixed by the local VAT authorities or by the National Board of Revenue (NBR) without regard to the actual sale price. Such price fixation gives rise to multiple complications in the conduct of business. More government control is established on the economic activities which is not desired in free market economy. This aspect has largely been addressed in the new VAT law.
In the new VAT law, VAT will be imposed on the fair market price of goods or services sold. Fair market price has been defined in the new VAT law (Section 2, Clause 58). Fair market price is the price which is fixed between the purchaser and the seller on the basis of their normal business relationship where there will be no impact of other relationship. Any item can be sold today at Taka 10 per piece but it may be sold at Taka 12 per piece tomorrow on the grounds of business relationship and market forces. There may be short supply of the item in the market or there may be increased demand in the market. On that basis price may rise.
Under the existing  law, provisions are complex with regard to sale of goods at reduced price. Advertisements are required to be published in the national dailies with the details of such discount sale. But in the new VAT law, there is no condition on such sale. The seller can give discount in the sale or can increase the price as decided by the market forces. The VAT authorities do not have anything to do with the increase or decrease in prices of goods and services. The seller is only to keep the records and evidence of the genuine causes of such rise in prices or discount sale. The price rise or discount sale must be caused by business relationship and market forces.  
Under the existing VAT law, there is Tariff Value on some goods and there is truncated VAT base on some services. Goods with Tariff Value can be sold at any price but VAT is to be paid on the basis of the Tariff Value of the goods fixed earlier. It may be mentioned that Tariff Value on some goods is fixed by the NBR. Generally, Tariff Value is lower than the market price of any item. If VAT is imposed on the truncated base of any service, then effectively the rate of VAT gets reduced. Maximum Retail Price (MRP) is also the base of VAT on some items. In the new VAT law, all these considerations have been done away with. Tariff Value or truncated base or MRP will not be a consideration for imposing VAT. VAT will be imposed only on the fair market price of goods and services. There is only one case in the new VAT law where there is truncated base. It is joint venture for property development. A landowner engages a property developer on his land to construct building. Then, the spaces are shared by the land owner and the property developer as per their agreement. This is a very common economic activity now-a-days. On the sale amount of such space, VAT-able base will be 50 per cent of the actual sale value, i.e, there will be 7.5 per cent effective rate of VAT under the new VAT law.
Holistically, the provisions for fixing the VAT-able price of goods and services have been made much simpler in the new VAT law than these have been so far. Such provisions have also been made friendly to the businesses.              
Dr. Md. Abdur Rouf is First Secretary of the National Board of Revenue (NBR).
 roufvat@gmail.com