VAT on superstores: Suspension or continuation?

There is a discussion whether VAT is to be withdrawn from the superstores or it is to be continued. Md. Jamal Hossin, from the University of Denver, USA wrote an article in this page on February 23, 2014 which was replied by me on February 26. Hossain took the trouble to reply again on February 28. I appreciate the writer's persistent efforts to advance his cause. He has given diagrammatic illustrations to reinforce his argument. Most of his arguments fall beyond my domain of VAT rather those arguments fall under marketing, economics and other disciplines. We are seeing an issue from different points of view. So, we have differences of opinion. Expressing my inability to resort to such graphical and diagrammatic analytical tools, I put forward, in this article, a few points which may be pertinent.
Hossain argues that to remove market distortions, superstore-based selling is to be promoted and therefore, VAT suspension can be an incentive to promote superstore-based selling. I do not know whether the writer's argument is universal to all societies.  However, my view is that ours is an economy, society and polity where such equation may not work. We can cite an example. Traffic gridlock in Dhaka city is a big problem for the city-dwellers. Many steps have been adopted so far to remove this problem but in vain. Tax suspension has also been tried but with no effect. A couple of years back to promote public transport, tax exemption facility was given for the import of large public transports and taxi cabs. That did not work. You do not find enough numbers of taxi cabs and large public transports on the city streets. This justifies that real problem lies elsewhere, not in tax.  
In our country, VAT gap is more at trading stage than at import and production stage. I can give you a few real-life examples without citing references. Face wash, weighing 60 gram (48 pieces pack), has a declared price of Taka 2,754.00 at the production stage. It has fixed Maximum Retail Price (MRP) at Taka 3,840.00. The difference is Taka 1,086.00. For dish wash (24 pieces pack), approved price is Taka 278.00 but its MRP is Taka 360.00. The difference is Taka 82.00. VAT at trading stage i.e., on this difference amount is presently at stake. After production, all stake-holders (distribution centre, wholesaler, retailer, carrier and others) are getting their due share from the sale of the item. Only the due share of the government is being disputed. The superstores have so far flouted the VAT laws and the Consumers Rights Protection Act charging VAT on top of MRP. MRP is the price which can never be crossed at any level. All expenses shall be included in the MRP. So, the superstores may be said to have charged VAT twice on the same item: one time within MRP that is lawful and the other time on top of MRP violating Consumers Rights Protection Act. There are few people to talk about this.  
Let us think of customer psychology. At my vicinity, there is a superstore. There is a kitchen market close to it. Let me explain, what are the factors that I, as a customer, consider to go or not to go to the superstore. When I think of going to the supershop, the first point that makes me discouraged is that there is no parking space in front of the shop. There is traffic in front of the supershop, since the superstore-goers park their vehicles on the street. Secondly, I ended up purchasing rotten fish from that shop several times. So, while thinking of purchasing fish, I usually prefer to go to the kitchen market. There is a fish-seller in that kitchen market who is known to me for about 18 years, on whom I have developed some reasonable degree of faith. I usually buy fish from him. Thirdly, I usually carry laptop inside my handbag. But in the supershop counter, the attendants show reluctance to allow carrying a bag with laptop. There are many more such issues those debar me from going to the supershop. As a customer, I never think of VAT to decide whether to go or not to go to the supershop.
I never think that VAT has retarded the growth of the supershops rather I have a completely conflicting hypothesis. The hypothesis is that VAT has contributed more to the growth of supershops compared to any other element. Please do not raise eyebrows! An analysis is long overdue regarding how much the supershops have collected from the customers as VAT and how much they have paid as VAT to the government treasury. The gap should be huge. The National Board of Revenue (NBR), with a very poor information technology ability, could not plug this loophole.
Between VAT and Excise Tax there is a basic difference, that is input tax credit. Under Excise Tax system, there is no input tax credit mechanism. Under VAT system, input tax credit mechanism functions. This means that anybody who has paid VAT on his purchase earlier shall take credit of the VAT paid. He will make value addition with the purchased goods or services. He will pay VAT on the total amount including value addition, i.e., he will pay more VAT on this goods and services while selling than he has paid while purchasing. Thus the government shall get VAT on value addition only at this stage. Again, the VAT paid at this stage shall be shifted to the next purchaser. Thus, the process of input tax credit and shifting of VAT to the next customer will go on until the final sale. Ultimately, the final customer, i.e., the consumer of the goods or services shall pay VAT. Therefore, VAT is a consumer tax, it is an indirect tax - it is a multiple-stage tax. VAT system is nothing but the establishment of such credit mechanism across almost all economic activities. If within the chain of the economic activities, anywhere input tax credit mechanism is broken, then the VAT system does not function. VAT is a modern taxation system. Soon after its introduction in the mid-1950s, it spread like wildfire across the globe because of its inherent beauty of input tax credit. Any suggestion that goes against input tax credit does not have any merit in the eyes of taxation theory. To make input tax credit mechanism operational, VAT should be there on all points up to the ultimate consumer from production or import. Superstores are a vibrant segment of trading stage. If it remains beyond the purview of VAT, then the input tax credit mechanism can not function and a proper VAT system can not develop. Therefore, there should be VAT on superstores.  
Dr. Md. Abdur Rouf is Director of the Central Intelligence Cell and Deputy Project Director of the VAT and Supplementary Duty Act, 2012 Implementation Project, National Board of Revenue (NBR). roufcus@yahoo.com.