Capital Machinery Imports: Govt backtracks on slapping advance tax

Entrepreneurs will not be required to pay Advance Tax on import of capital machinery and spare parts this fiscal year, as the government has backtracked on its move to levy the indirect tax on such import to facilitate industrialisation.

In the proposed budget for fiscal 2019-20, the government sought to slap 5 percent Advance Tax (AT) on import under the new Value Added Tax (VAT) to widen the VAT net and curb scope for money laundering through trade mis-invoicing.

The proposal for imposing AT raised concerns among businesses that it would push up operational costs of businesses, particularly for domestic market-oriented industries, as import of raw materials by export-oriented factories is now out of the purview of AT.

And finally, in his closing speech on the budget on Saturday, Finance Minister AHM Mustafa Kamal proposed AT exemption on import of capital machinery and spare parts, and machinery and other materials for power plants to encourage investment.

“We welcome the withdrawal and [are] thankful [to the government] for accepting part of our proposal for the manufacturing sector,” said Sheikh F Fahim, president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI).

The FBCCI had earlier also demanded withdrawal of AT on import of industrial raw materials.

The government has also retreated from its initial plan to massively hike VAT on steel rod amid entrepreneurs’ concerns that the spike would lead to price spiral of the material, affecting the construction sector and the burgeoning steel industry.

The National Board of Revenue (NBR) initially proposed imposing Tk 2,000 as specific VAT on each tonne of steel rod for fiscal 2019-20, seeking to increase the indirect tax on the construction material by up to four times that in the outgoing fiscal year.

However, during the passage of the tax measures on Saturday, the specific VAT on rod was reduced by up to 50 percent from the proposed rates.

For example, VAT on mild steel rod made from scrap was reduced to Tk 1,200 each tonne from proposed Tk 2,000 for this fiscal year.

Besides, VAT on ingot made from locally collected meltable scrap was slashed to Tk 1,000 from proposed Tk 2,000. VAT on rod made from billet was also cut by half.

Despite the reduction, overall incidence of VAT on rod has increased as the new rates are double the amount of VAT collected from users for each tonne of the key construction material in the outgoing fiscal year, according to NBR documents.

Industry operators say rod prices may go up because of the new rates.

Tapan Sengupta, executive director of the BSRM, a leading steel manufacturer in the country, said millers will have to bear AT on import of raw materials for making steel and pay tax at source apart from the increased VAT.

As a result, operational cost of mills will increase, and it will have an impact on prices of rod, he added.

BUDGET PASSED

The House yesterday passed Tk 5,23,190 crore national budget for fiscal 2019-20, 18 percent higher than the revised outlay for the outgoing fiscal year.

Kamal placed the Appropriations Bill 2019, seeking a budgetary allocation of Tk 6,42,478.27 crore which was unanimously passed by voice vote.

A total of nine lawmakers from the main opposition Jatiya Party, and the BNP submitted cut motions on the budget.

They were allowed to take part in discussions on Secondary and Higher Education Division, and the health, agriculture, and disaster management and relief ministries.

Opposition and independent MPs did not raise voice against the passage of the Appropriations Bill.

Participating in a cut motion, BNP lawmaker Rumeen Farhana urged the government not to engage MPs in distributing Test Relief and Kabikha (Kajer Binimoye Khaddo) funds.

This is not the task of lawmakers. Their main task is to formulate laws and government policies, not to go after Test Relief and Kabikha funds, the MP mentioned.

She suggested that the funds should be distributed by the Local Government Division.