Bangladesh finance minister Muhith defends uniform VAT

Consumers might be slapped with a uniform 15 percent value added tax from next fiscal year as Finance Minister AMA Muhith yesterday reiterated his determination to go ahead with his planned fiscal measure.

“We don't have any objection to differential VAT rates. My preference is to keep 15 percent VAT in the new VAT law [a bill pending with parliament] unchanged for some days,” he said while speaking at a meeting with the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) at the Sonargaon Hotel in the capital.

At present, consumers pay different rates for different products and services. For example, they provide 15 percent VAT on food items, 7.5 percent on the English medium schools' tuition fees and 5 percent on garment and jewellery products.

If the VAT plan is finally passed in parliament in June, customers might have to pay the rate in the next fiscal year, which starts on July 1.

Muhith said the government plans to keep the 15 percent rate in the upcoming year and move for different VAT rates towards the end of the tenure of the current government.

He suggested the businesses improve the accounting system to ease the pressure of VAT.

“You will not be really bothered by VAT. It will help the businesses to do their own planning,” the minister added.

The 15 percent VAT has been framed at the prescription of the International Monetary Fund (IMF) as a condition to avail the lender's $1 billion in extended credit facility. In October 2014, the IMF even deferred the release of the sixth instalment of the loan after the government failed to lay out a fresh roadmap for implementing the new VAT law.

The government had earlier committed to the IMF that the new VAT law would come into effect in July 2015, but due to the opposition from influential ministers and the business community, the government had pushed it back to July 2016. The existing VAT law was introduced in 1991 and has gone through many changes on an ad-hoc basis.

However, a number of business leaders opposed the uniform VAT rate at the 37th consultative meeting organised jointly by the FBCCI and the National Board of Revenue (NBR) yesterday.

“Small and medium enterprises will not support the abolition of package VAT,” said FBCCI Director Abu Motaleb. His comments were met with claps from the business leaders who represented different chambers and trade bodies across the country.

Motaleb also said one quarter would launch a movement if the package VAT was withdrawn.

Sheikh Masadul Alam Masud, chairman of the Bangladesh Auto Re-Rolling and Steel Mills Association, said, “We are worried about the VAT. If 15 percent VAT is enforced, the prices of steel products will go up 15 percent straight.”

According to a proposal of a joint committee of the NBR and the FBCCI, all businesses that sell products and services at fixed rate will pay 2 percent VAT, and those don't sell at fixed rate will pay VAT at 15 percent rate.

Before the meeting, Muhith also sat with the commerce minister and senior business leaders of the FBCCI at the commerce ministry and talked about the new VAT law.

The finance minister would organise a separate discussion on the new VAT law later, said NBR Chairman Md Nojibur Rahman and FBCCI First Vice President Md Shafiul Islam.

VAT rates vary from countries to countries. It is 4.8 percent to 21 percent in the European Union, 16-17 percent in Pakistan, 12.5-15 percent in India, 10 percent in Malaysia, 17 percent in China and 20 percent in Vietnam.

VAT is a huge source of income for Bangladesh.

Of the government's tax revenues, 37 percent will come from VAT in the current fiscal year.