Govt may hike duty to make up for VAT loss
The government may increase supplementary duty on some products and services, including tobacco and usage of mobile phones, to make up for the potential revenue loss from a cut in the planned VAT rate.
The increased SD on these sectors may help cover a part of the revenue loss, said a senior official of the finance ministry yesterday.
The measure is being considered as the government mulls reducing the VAT rate from 15 percent that will be applicable across the board once the new law comes into force from July 1. On May 21, Finance Minister AMA Muhith said the rate would be lowered slightly.
Concerns are high that imposition of the unified 15 percent VAT rate on all goods and services, from multiple rates at present, may fuel costs of living and affect low and fixed income consumers.
In response to a query on the reduced VAT rate, the finance minister on May 21 said it will be finalised on May 25 or 26. He reaffirmed that a single rate will be in effect instead of multiple rates.
The minister held a meeting with Prime Minister Sheikh Hasina on May 14 on the proposed budgetary measures, including activation of the new VAT law for 2017-18.
Insiders said the government may reduce the rate of the indirect tax to 12 percent. Earlier, Muhith told reporters that a one percentage point cut in the rate will cause a revenue loss of Tk 4,000 crore.
The finance ministry official said SDs are to be increased on items that generate large amount of revenue. Cigarettes and usage of mobile phones are the two sectors that together bring more than a third of the total revenue collected from businesses and economic activities domestically.
At present, cigarettes are subject to as high as 64 percent SD and 15 percent VAT. Mobile phone users have to count 5 percent SD along with 15 percent VAT and 1 percent surcharge. Policymakers had also considered imposing VAT on English medium schools. But the Supreme Court ruled in February that the government can't collect VAT from the students of these schools, giving some relief to the guardians.
As per the government plan, VAT will account for 40 percent of the total revenue collection target of Tk 236,000 crore in the upcoming fiscal year. The target is 31 percent higher than the revised target for the outgoing fiscal year. VAT, a consumption tax, is the biggest source of revenue.
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