IMF holds back loans over delay in VAT law
The IMF has deferred the release of the sixth instalment of the $1 billion loan to next year after the government failed to lay out a fresh roadmap for implementing the new VAT law.
The sixth instalment -- around $140 million -- had been scheduled for release in November, following a successful review by the visiting International Monetary Fund mission last month.
The decision on deferral was conveyed to Finance Minister AMA Muhith when he met IMF high officials at the US capital in the second week of this month, according to finance ministry officials.
On the sidelines of the World Bank-IMF annual conference, Muhith held meetings with higher-ups of the multilateral lenders, where the issue of revenue reforms, especially the implementation of the VAT law, was discussed at length.
It was then agreed that the sixth and last instalments would be released together in April next year, by which time concrete political commitment about the implementation of the new VAT law has to be given.
The government had earlier committed to the IMF that the new VAT law would come into effect in July 2015, but due to opposition by influential ministers and the business community, the government had pushed it back to July 2016.
The IMF agreed to it but tagged a condition that the government would have to issue a formal notice announcing the roll-out of VAT law in July 2016.
Muhith, however, did not agree to make such announcements at this point of time, the officials said.
In Washington, IMF officials categorically told Muhith that if a roadmap including a timeframe was not prepared they would not be able to place a review to the IMF Board for releasing the instalment.
The reason for so much emphasis on VAT reforms is the persistent revenue shortfall relative to budget expectations, which have been hampering development spending, the IMF mission said on September 30 at the conclusion of its visit.
Meanwhile, Zahid Hussain, lead economist at WB's Dhaka office, at the launch of Bangladesh Development Update on Tuesday, said structural reforms by various government institutions have been progressing at a slow pace.
Subsequently, the review for release of the sixth instalment of the loan known as Extended Credit Facility has been shifted to April this year from November, he said at the press briefing.
The VAT law was prepared after a series of discussions and processes. “It is a little late in the day now to be debating the necessity of the VAT law -- it has already been passed in parliament.”
Hussain further said the government has already bowed to pressure from various quarters once and has deferred the implementation of the law. “It cannot be deferred any further -- it has to be implemented.” “It is normal for doubts to arise when a change takes place. But the government will have to go forward with its commitment.”
Hussain said the new law has two features -- a uniform rate of 15 percent and elimination of various complications like truncated base, tariff value exemption and so on -- that would simplify the VAT collection process and make it more transparent.
The existing VAT law was introduced in 1991 and has gone through many changes on an ad-hoc basis. “It is no longer a proper VAT law and needs replacing,” the WB economist added.
Meanwhile, the National Board of Revenue is set to form a panel to review the VAT and Supplementary Duty Act 2012 amid demands from businessmen, who allege that their recommendations and concerns were not reflected in the law. The move comes after Muhith early last month announced a review of the contentious law.
Comments