VAT on consumer goods should go

Essential commodities consumed by people of low-income group should be exempt from payment of the value-added tax, says State Minister for Finance MA Mannan.
He also suggested exploring the possibility of reducing the rate of VAT from 15 per cent in the upcoming VAT and SD law.
The state minister made the suggestions at a roundtable organized by the Center for Policy Dialogue (CPD) at a city hotel Wednesday to discuss the new VAT and Supplementary Duty (SD) Act, scheduled to take effect from 2015.
"It is important to cut rate of VAT as it can leave adverse impact on inflation and consumption of goods," he said.
He also underscored the need for transparency, awareness building, dialogue with businesses and phasing into a new system.
Dr Mannan expressed his reservation over the new provisions on freezing bank accounts in the new law.
"It should be reconsidered. No bank account should be frozen without court instructions," he said.
Dr Ahsan H Mansur, Executive Director of the Policy Research Institute (PRI), said the government needs to replace the existing law as it has gone through several changes on political considerations and for other reasons.
VAT collection lost its buoyancy after 1992 that was regained again 2011-2012, he noted.
"Reform and upgradation of any law is important to reap the expected result and achieve revenue-collection target," he told the meet.
He said the government held extensive discussions with all the stakeholders on the new VAT law.
Dr Mansur viewed that the return-submission scenario is extremely poor due to existing faulty current-account system.
Only 35,000 businesses submit VAT return out of 700,000 registered ones, he said.
There must be options to crosscheck, audit that is quite difficult in the existing law having package system of VAT that contributes only Tk 100 million annually, he said.
He also pointed that the country's tax-GDP ratio is only 10.5 per cent that doesn't show any improvement.
Former Finance Adviser Dr AB Mirza Aziz, World Bank (WB) Bangladesh Chief Economist Dr Zahid Hussain, Chittagong Stock Exchange (CSE) chairman and former NBR chairman Dr Muhammad Abdul Mazid, VAT member Barrister Jahangir Hossain, Federation of Bangladesh Chambers of Commerce and Industry President Kazi Akram, trade experts and FBCCI representative MI Siddique, Ali Jaman, Build Bangladesh Chief Executive Officer Ferdous Ara Begum, representatives from SUPRO, and Equity BD also spoke at the programme.
CPD Research Fellow Towfiqul Islam Khan presented a detailed paper on VAT and SD act, its concerns and implementation challenges at the programme.
CPD Executive Director Professor Mustafizur Rahman moderated the programme while Research Director Dr Fahmida Khatun, distinguished fellow Debapriya Battacharya also attended and spoke on the programme.
Kazi Akram said the trade leaders' opinions coming through different discussions should be incorporated into the new VAT law.
SME association president Ali Zaman and Build CEO Ferdous Ara Begum said the new law should be prepared with favorable provisions for small and medium businesses to help those sustain.
They said small businesses cannot import products or keep the documents to claim tax rebate.
Mr Zaman said there is sale and excise law prevailing in the law that the government had committed to withdrawing.
He said small business-profit level is between .25 and 1.0 per cent so how they could afford 4.0 per cent VAT.
NBR member Mr Jahangir said the new law incorporated modern system by ensuring recorded transactions, exempting small businesses and keeping provisions of input credits for raw materials.
Although the new law has 15 per cent rate, but actual rate would not exceed 3.0 per cent, he said.
The WB lead economist said the country needs to increase its tax-GDP ratio to sustain its recurrent expenditure.
"Tax expenditure has been found 2.5 per cent of the country's GDP. Of the ratio, the highest leakage has been found in VAT system," he said.
He said VAT is a consumption tax so consumers should speak up on this.
Dr Zahid said 15 per cent VAT rate is not too high compared to that of the other countries.
However, Dr Mirza Aziz and FBCCI leaders suggested a tolerable rate as most of the countries have VAT rates below 15 per cent.
Dr Mirza Aziz suggested focusing equity implications, incentives to investors, administrative simplicity and inflation aspect at the time of shifting forward.
"VAT is an inequitable system as the poor are paying same like well-off sections. In most of the countries vat rate is below 15 per cent," he said.
Dr Abdul Mazid said the new law should be implementable.
He underscored the need for coordination among the NBR wings and termed unified TIN as an important tool to ensure coordination with VAT and income-tax wing.
MI Siddique suggested ensuring Vat justice and cut of discretionary power of Vat officials to remove fear factor.
He also suggested incorporating specific rules to determine the turnover of small and medium businesses.
The Supro representative underscored the need for ensuring representation of consumers in dialogues.
Towfiqul said the CPD conducted a research that was also carried by other five South Asian countries.
The study found many of the SMEs avoiding payment of VAT as they consider it as troublesome, complex and needing huge documentations.
It found four points of concern of businesses on new law: a single rate of VAT, abolishing package VAT, keeping many documents, and additional power of VAT officials.
In the existing law, framed in 1991, the businesses also sought withdrawal of Advance Trade VAT and advance payment of VAT.
The CDP fellow said the ongoing taxation-reform agenda focused on revenue collection and ensuring availability of finance for development.
He suggested similar importance on other economic issues, including employment, investment, economic equity and justice.
doulot_akter@yaho.com