More products to be VAT-free in new law
The government is expected to keep larger number of goods and services out of the purview of value-added tax in the new law that is scheduled to take effect from July 1, said revenue officials yesterday.
VAT on more than 1,500 products and services may be waived under the VAT and Supplementary Duty Act 2012, up from 1,400 goods and services that are free from the indirect tax under the existing VAT Act 1991.
“We are bringing more goods and services under the VAT exemption facility to ensure greater comfort for low- and middle-income families,” said a senior official of the finance ministry.
Fresh produce like rice, vegetables, chicken and eggs and processed commodities like edible oil and sugar are likely to be exempted from VAT under the new law.
The government, at the prescription of the International Monetary Fund, framed the new law to boost revenue collection from domestic trade and economic activities.
Introduced in 1991, VAT is now the biggest source of revenue, followed by income tax and imports, according to the National Board of Revenue.
The government wants to increase the VAT-GDP ratio to 4.7 percent by 2020 from present 3.5 percent by implementing the new law that envisages a uniform rate, doing away with the multiple rates at present.
However, the end of multiple rates and the application of 15 percent VAT across the board have raised concerns of a rise in the cost of living and a negative impact on small and medium firms.
To bring a little relief, the government may reduce the flat rate of VAT by 3 percentage points to 12 percent and ease some other provisions, including VAT-free turnover limit and increased protection to industries.
Instead of slashing the list of products for supplementary duty as envisaged in the new law, policymakers are considering retaining the current list, which has more than 1,400 products.
Basic commodities and lifesaving drugs, healthcare diagnostic services, education and skills development training, mass transport including taxi, day care and old homes are exempt from VAT in the new law.
The indirect tax is expected to be waived on 20 more life-saving drugs along with the existing ones, according to the finance ministry official.
It also seeks to exempt VAT on land transfer and rentals of property for residential purposes.
In addition, buyers of flats of up to 750 square feet area may get relief from VAT payment under the new law, said the official.
At present, home buyers have to pay between 1.5 and 4.5 percent VAT for flats depending on size. For 1-1,100 square feet flats, 1.5 percent VAT is payable, according to the NBR.
VAT on rod may also be waived so that the cost of building homes and infrastructure does not soar.
Currently, the indirect tax is levied on rod based on tariff value or minimum value. Rentals for office purposes, particularly for offices of export-oriented industries, are also likely to remain free from VAT, the official said.
VAT may not be applicable for transport of agricultural produce and software and IT services.
The inclusion of increased number of products and services, slashing of the flat VAT rate and the application of rebates will cause revenue loss for the state. However, the implementation of the new law will increase compliance and help curb evasion, the official added.