New VAT Regime New concern for consumers
Shifting from its initial plan to slap a uniform rate, the government has finally proposed four rates of Value Added Tax to please businesspeople and take them on board to implement the new VAT law from the next fiscal year.
But the consumers, who bear the burden of indirect tax, have things to worry about.
The relief from VAT, which they used to enjoy in buying essentials and services under the 1991 VAT law, is going to be over in the new VAT system.
They are going to feel pressure on their wallets in purchasing many commodities --from spices to edible oil, plastic wares to aluminium products, according to measures proposed in the budget yesterday.
The government proposes slapping 5 percent, 7.5 percent and 10 percent VAT on specific goods and services, apart from the standard VAT rate of 15 percent that has been in force for nearly three decades.
In addition, it wants to impose specific tax on some services and products such as key construction material rod and newsprint.
It has also suggested continuing the existing 2 percent and 2.4 percent VAT at the trading stage of petroleum and pharmaceuticals.
Businesspeople will not be able to avail themselves of input tax credit if they pay less than 15 percent VAT.
"Wherever 15 percent VAT is applicable, the input tax credit can be obtained through the VAT return," Finance Minister AHM Mustafa Kamal said in his written speech.
This means total tax or VAT incidence will increase and consumers will have to bear the brunt.
Ahsan H Mansur, executive director of Policy Research Institute of Bangladesh, had earlier said the tax incidence may go up to 37.5 percent if businesses do not get rebate or input tax credit.
Talking to this newspaper, Snehasish Barua, partner of chartered accounting firm Snehasish Mahmud & Co, said, "This will not only increase the company's costs but also act as a barrier to the uniform VAT rate."
He noted that the finance bill for fiscal 2019-20 proposed significant changes in the VAT and Supplementary Duty Act 2012.
Firms with annual turnover of up to Tk 50 lakh each has been exempted from turnover tax to boost small businesses. But those having annual turnovers above Tk 50 lakh will have to pay turnover tax of 4 percent from the next fiscal year.
Snehasish described the move as a "big relief".
However, it will be a challenge for the National Board of Revenue to determine firms with turnover of Tk 50 lakh each as their owners will try to keep the turnover below the threshold to evade VAT, he said.
Under the 1991 VAT law, VAT was imposed on 84 products, including spices, powdered milk, paper, newsprint, exercise books and rod. And VAT on those items were determined on the basis of tariff value of the items to reduce pressure on consumers.
From the next fiscal year, most of these items will come under the VAT rate of 5 percent. This could result in an increase in prices of a number of those items.
Besides, edible oil such as soybean was exempted from VAT since 2015-16.
But the government seeks to impose VAT on edible oil from the next fiscal year.
Biswajit Saha, director of legal and regulatory affairs at the City Group, a major commodity importer and processor, said prices of edible oil would rise due to withdrawal of exemption.
Manwar Hossain, chairman of Bangladesh Steel Manufacturers' Association, said prices of rod would go up by Tk 1,100-Tk 2,500 per tonne as VAT on the key construction material has been increased.
"It will affect consumers and the sector. Costs of apartments and buildings will rise," he said.
The NBR said the new VAT system will be implemented through automation, and it will be mandatory for shop owners and business entities to keep records of VAT invoice through Electronic Fiscal Device (EFD) and Sales Data Controller (SDC).
About the implementation of the new VAT law, Choudhury Atiur Rasul, director of accounts at Pran-RFL Group, said, "It appears that there is no major change. But there is no good news for consumers as well."
AF Nesaruddin, president of the Institute of Chartered Accountants of Bangladesh (ICAB), said, "Introduction of multilevel rates of VAT is in fact a continuation of the existing system.
"Since VAT automation is key to this new VAT act, steps should be taken immediately for its smooth implementation."
A number of NBR officials, however, said progress in automating the VAT system has been sluggish.
At present, businesses can register online for Business Identification Number and the revenue authority plans to start online filing of VAT return from July 1.
Nesaruddin said the authorities should assess the impact of not giving VAT credit to businesses that pay VAT of less than 15 percent.
Talking to this correspondent, a senior NBR official admitted that prices of some products and services may increase due to revision of VAT rates.
"But we have tried as much as possible so that prices do not rise for revision of the VAT rates. At the same time, we also had to find ways to increase revenue collection," the official said, seeking anonymity.
VAT measures have been drawn up, keeping in mind that businesses do not oppose implementation of the new VAT law as they did in the past, the official pointed out.
On the prescription of the International Monetary Fund, the government had framed the VAT law with a uniform 15-percent rate to increase revenue collection by automating the VAT system.
But opposition from businesses against a uniform VAT rate forced the government to delay implementation of the VAT law thrice.
"We just wanted to start implementing the law," said the NBR official.
The government has assigned the NBR to collect a total of Tk 325,660 crore in the next fiscal year. Of the amount, it will have to collect Tk 123,067 crore in VAT, which is 17 percent higher than the revised target.
The official expects that the NBR would be able a collect a substantial amount of revenue from increased VAT rates and supplementary duties on cigarette, mobile phone usages and products such as edible oil.