NBR may phase out truncated VAT rates

The National Board of Revenue (NBR) is likely to phase out truncated or reduced rates of value added tax (VAT) way before the VAT and Supplementary Duty Act 2012 comes into effect, officials said yesterday.

The revenue administration is taking the initiative following Finance Minister AMA Muhith's instruction to take steps to gradually phase out such rates of VAT, which is determined on administered value of certain services.

It means that rates of truncated VAT will have to be increased to 15 percent now applicable on most of the goods and services, said officials of NBR.

The rates of VAT fixed on truncated bases fall below the standard rate of VAT at 15 percent on goods and services.

Currently, taxmen collect VAT on truncated rates from 19 services such as that of electricity, motor garage and workshops, realtors, jewellers and English medium schools. The rates of truncated VAT range from 1.5 percent to 10 percent, according to the NBR.

“We will work on the rates in line with the instruction of high ups,” said a senior official of NBR.

The official said the rates of truncated VAT would be increased gradually to 15 percent prior to the implementation of the VAT and SD law from the fiscal 2019-20. The rates may be hiked from the next fiscal year, he said.

The government originally scheduled to roll out the new law in July 2015. Since then, implementation of the law has been deferred twice in the face of opposition from businesses on ending multiple rates of VAT on more than 100 goods and services.

The government collects reduced rates of VAT from various goods and services under the existing VAT Act 1991 to lighten the burden of indirect tax on consumers.

VAT, also known as consumption tax, is the biggest source of revenue collected by the NBR. VAT receipts from local businesses soared 19 percent year-on-year to Tk 66,891 crore in fiscal 2016-17.

The revenue collection target for the current fiscal year has been set at Tk 248,190 crore, which is 34 percent higher than last fiscal year's preliminary figures. The VAT collection target has been fixed at Tk 91,344 crore.