Business-friendly VAT rate finalised

The government is set to implement the new VAT law from July this year but with some modifications to give some comfort to businesses and consumers.

The development comes after Prime Minister Sheikh Hasina at a meeting on proposed budgetary measures for fiscal 2017-18 on Sunday night gave the nod to the adjustments in the VAT law.

“We had a fruitful meeting regarding income tax, customs and VAT. The results of the discussion will be reflected in the upcoming budget proposal,” said Commerce Minister Tofail Ahmed, who was present at the high-level meeting on fiscal measures.

He said most of the issues regarding the implementation of the VAT law have been finalised; the rest will be sorted later by the prime minister and the finance minister.

Finance ministry officials said the uniform VAT rate under the new law will most definitely be flat 12 percent instead of the 15 percent rate that was envisaged when the law was framed in 2012.

Ahmed said the new VAT law will be implemented from next fiscal year.  He, however, declined to comment on the possible cut in rate.

Everything will become clear during the placement of the budget proposal on June 1, he said, adding that the rate will be comfortable and there would be no negative impact on businesses, be it small, large or medium.

“We hope the businessmen will be happy with the decisions we are going to take. Considering all aspects we are going to implement the law with due care. We think businesses will be happy,” he added.

Last week, Finance Minister AMA Muhith at a meeting with editors of newspapers said the rate of VAT will be flat but there will be a cut from 15 percent.

He did not mention the rate but said a one percentage point reduction in rate will cause a revenue loss of Tk 4,000 crore.

To make up the revenue loss, Muhith said the government plans to install 50,000 electronic cash registers at shops to curb VAT dodging.

Revenue officials said the VAT-exempted turnover limit and the highest ceiling of annual turnover to collect turnover tax are likely to be increased to make businesses happy.

The VAT-exempted annual turnover limit might be increased to Tk 35 lakh or more from the present Tk 30 lakh.

The Federation of Bangladesh Chambers of Commerce and Industry has demanded VAT-free turnover limit of Tk 36 lakh. The upper threshold of Tk 80 lakh will also be hiked to please small and medium firms.

The country's apex trade body wants the government fix Tk 1.5 crore as the highest threshold for turnover tax at the production stage.

The number of products that will face supplementary duty in imports is likely to rise from 170 to nearly 500 to please entrepreneurs and protect domestic industries from stiff competition from imported products.

The government also plans to expand the list of VAT-exempted items to ease the burden on consumers.

Under the new law, essential commodities, agricultural products and life-saving drugs are exempted from VAT.

Termed as VAT and Supplementary Duty Act 2012, the new law envisages a uniform 15 percent VAT instead of the multiple rates now applicable to many goods and services.

The move raised concern that application of the uniform rate would increase the already high cost of living.

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

The government plans to collect 40 percent of its revenue collection target of Tk 236,000 crore from VAT in the upcoming fiscal year. The target is 31 percent higher than the revised target for the outgoing fiscal year. VAT, a type of consumption tax, is the biggest source of revenue.