Businesses not ready for new VAT system: analysts

Businesses are yet to fully understand the new VAT system and the implementation of the law even though only three weeks remain for the legislation to come into effect, said analysts yesterday.

The observation came at a roundtable jointly organised by the Institute of Chartered Accountants of Bangladesh and Bangla daily Prothom Alo at the newspaper's office in the capital.

Muhammad Farhad Hossain, a former president of ICAB, said Bangladesh's tax rate is much higher than its neighbouring countries.

“It is important to consider whether the businesses are ready to comply with the VAT law,” said Kamrul Islam, vice-president of Dhaka Chamber of Commerce and Industry.  

He said the prices of commodities will rise if the businesses cannot maintain records properly, but the flipside is also true.

Islam said the National Board of Revenue's (NBR) claim of training two lakh businesses on online VAT payment is not true. “The number may not be over 20,000,” he added.

The VAT law is not at all easy to understand, said Abu Naser, a director of the Federation of Bangladesh Chambers of Commerce and Industry.

“It is not possible for a person to run a business if he has to become a chartered accountant to understand the new VAT.”

The businesses' demand of multiple rates was not considered, he said.

As a result, the prices of construction materials such as rod have already started rising following the announcement of application of uniform 15 percent VAT from July 1, Naser added.

State Minister for Finance and Planning MA Mannan, who attended the event, acknowledged that there is a lack in preparation from the government side.

“More training is needed. We are not fully prepared for the new VAT system yet. But we have to start from some point. We need to organise more training sessions to implement the law properly,” he added.

Discussants said the proposed budget for fiscal 2017-18 has created unease among people owing to the possibility of a spiral in living costs and erosion of purchasing capacity thanks to the imposition of a flat 15 percent VAT, no change in tax-free income limit and hike in yearly excise duty on account balance of over Tk 1 lakh.

But Mannan said: “We have kept most of items out of the purview of VAT so that low income people are not affected.”

“But I personally think tax should be imposed on every product except for lifesaving drugs. It should be imposed even on rice.”

He said people have now come to accept the size of the budget, which is the largest yet, although it appeared 'very big' during the initial days.

“Everybody, from top to bottom, is in discomfort on the issue of VAT,” said Rasheda K Chowdhury, executive director of Campaign for Popular Education, a national coalition of non-governmental organisations working in the field of literacy and education. As a case in point, she shared her recent rickshaw ride experience: “The rickshaw-puller demanded a higher fare saying that he has heard the prices will rise as a new law is coming.”

She went on to seek clarification from the government whether the price level will go up or not once the VAT and Supplementary Duty Act 2012 comes into effect.

The government needs to give attention to improve its budget implementation capacity, said Faruq Ahmad Siddiqi, former chairman of Bangladesh Securities and Exchange Commission.

Mustafa Jabbar, president of the Bangladesh Association of Software and Information Services, expressed satisfaction over the budgetary measures for the ICT sector.

He, however, expressed doubts about the implementation of the new VAT law online through the software developed by a Vietnamese firm. “The software is very complicated and even the NBR officers do not understand it properly. No ordinary person will be able to use it.”

“It would not be possible to digitise the VAT system without digitising the NBR. Without digitising the NBR, how is it possible to go for online VAT?”

Jabbar went on to state that the online system may increase harassment for businesses. 

Mohammed Nasir, vice-president of the Bangladesh Garment Manufacturers and Exporters Association, said the export growth has been slow and remittance declining.

He demanded support from the government to boost shipment. The government has allocated Tk 2,000 crore for the state banks' capitalisation, a move that was criticised by Kamrul Abedin, former president of ICAB.

“Like in previous years, the government also give scope to whiten black money. As long as this scope is there, bribery and corruption will not stop,” he added.