New VAT law still raising qualms

Many are still expecting goods and services to become costlier for the imposition of uniform 15 percent VAT under the new law despite repeated assurances from the National Board of Revenue.

“We should be happy with the NBR's statement, but we are worried that prices may rise,” said Abul Kasem Khan, president of the Dhaka Chamber of Commerce and Industry.

Goods and services that are currently subject to multiple VAT rates -- such as edible oil, processed spices, paper, biscuits, electricity, restaurants, rod, bricks, apartments and furniture -- may see their prices creep up once the uniform VAT is applied from July.

Currently, the NBR collects reduced rates of VAT on 85 products based on tariff value and 15 services based on truncated base. Their discontinuation means people will have to pay VAT at the market price instead of the administered one.

But the NBR maintains that the new law will not increase the prices of goods in general as businesses will be able to get rebates.

So, in theory, the prices of various products should decline as rebate will be effective in all stages of the value chain, according to taxmen. Under the existing law, getting rebates is a long drawn-out process.

“But it is unlikely that businesses will slash the prices after getting rebates,” said a senior official of the NBR seeking to remain unnamed.

Rather, the burden on consumers is likely to rise in many cases, he said.

“But we have nothing to do here as we are not responsible for ensuring that the rights of consumers are protected.”

If such a scenario arises, the consumer rights watchdog should step in, the official added.

Mir Nasir Hossain, former president of the Federation of Bangladesh Chambers of Commerce and Industry, said not all firms have the capacity to claim rebate. 

Subsequently, the FBCCI has demanded reduced rates of VAT for firms that are yet to become capable of keeping records properly.

“It appears that the imposition of 15 percent VAT will have an effect on prices although the NBR says otherwise. There is an apprehension. We cannot be sure until we see the coming budget,” Hossain added.

The DCCI president said businesses will get a clearer idea if the revenue authority gives a breakdown of which products would see their prices rise, which would remain the same and which would fall after the new VAT law comes into effect.

“I share the view not only as a businessman but also as a consumer,” he said.

The government initially planned to implement the VAT and Supplementary Duty Act 2012 from July last year. But in the face of opposition from businesses the implementation was delayed.

The new law aims to increase revenue collection from domestic sources by reducing evasion and ensuring transparency and accountability in revenue administration.

The legislation has kept basic foodstuff, selected life-savings drugs, public transport, public health, education and farming exempt from VAT.

Md Shafiul Islam, first vice-president of the FBCCI, said the NBR should carry out an impact assessment study instead of saying that there will be no negative effect on the prices of goods and services.

There is a lack of trust as the recommendations of the joint panel of the FBCCI and the NBR on VAT law and the decisions of a joint working committee have not been implemented yet, Islam said, adding that as many as 20 meetings took place in recent months.

“But we do not know what is going to happen. We do not want the inflation to rise. That is what we are trying to make them understand.”

On the NBR's claim of rebate, Islam said there is confusion among many on the matter.

“There are many good things in the law. Let them implement that by addressing our concerns. We have no problem. Anything imposed upon will not be good,” Islam added.

NBR's view

In a statement recently, the NBR said a section of people are campaigning against the law without considering the rebates that the businesses would be enjoying.

The amount of VAT will actually decline, it insists.

“The fact is the total VAT burden will come down a lot once the new law is implemented,” it said, while citing VAT on tariff value as a case in point.

Consumers now have to pay higher amounts of VAT as traders do not get rebate under the existing system.

The same is true for VAT imposed on 15 services based on truncated base value or reduced value. Under the new law, businesses will get rebates for the 15 services.

“So, there should be no worries of inflation spike,” the tax collector said.

Every manufacturer in city corporation areas in Dhaka and Chittagong has to pay 15 percent VAT irrespective of turnover under the present law.

However, small businesses have been kept out of the purview of the new law, the revenue authority said.

Enterprises with annual turnover of up to Tk 30 lakh will get VAT waiver. In addition, enterprises with annual turnover of up to Tk 80 lakh will have to pay 3 percent tax.

Taxmen said the implementation of the new law will reduce the cost of doing business for those that do business properly. For instance, businesses will get rebate upon presenting the receipts of purchases.

But firms that do not deposit the actual amount of VAT will face difficulty.

Additional revenue will come from those VAT registered businesses that do not pay VAT, while those who evade tax and show less than their actual sales will have to show proper accounts.

“They will have to pay the actual amount of VAT,” the NBR said.

The NBR said people pay 15 percent VAT under the existing law even today and they will continue to do so under the new law. But the new law will create a framework such that the VAT paid by them actually reaches the exchequer.

“We appeal to the people not to be misguided by those who are spreading misinformation to misappropriate the money paid by people,” the NBR said in the statement.