Businesses worried about changes in VAT law

Businesses are worried that some proposed changes in the value-added tax (VAT) law will increase their costs and discourage them from seeking justice against inflated revenue claims by field officials of the National Board of Revenue (NBR).

One of the changes is that the deposit needed for appealing against tax claims before VAT commissioners and appellate tribunals has been hiked from 10 per cent of the disputed amount at present to 20 per cent from next fiscal year, beginning in July.

In his budget speech, Finance Minister AHM Mustafa Kamal said the increase aimed at reducing a tendency of lodging "illogical cases" against VAT claimed by field officials of the revenue authority.

Businesses, however, said the measure was detrimental to the right to seek justice to resolve disputes.

"This will be a punishment for business. It should be withdrawn," said NKA Mobin, senior vice president of the Dhaka Chamber of Commerce and Industry. 

The current practice is that firms file appeals for revision of VAT claims before commissioners of the respective fields by paying 10 per cent of the disputed amount. Then they can appeal before VAT Appellate Tribunal of the NBR by paying another 10 per cent of the disputed amount.

This means that they have to pay one fifth of the claimed amount to resolve the dispute.

And when they want to seek revision of appellate tribunal verdicts before the High Court, they have to pay another 10 per cent of the disputed amount, meaning that firms have to pay nearly one-third of the total VAT claims to seek justice.

As per the proposed changes for next fiscal year, businesses will have to deposit a total of 40 per cent of the disputed VAT amount – 20 percent to file appeals before the commissioner of respective field and 20 per cent for VAT Appellate Tribunal, said Md Arshed Ali, convener of the research wing of VAT Professional Forum.

Businesses will have to deposit a further 10 per cent of the disputed tax in order to seek revision against appellate tribunal verdicts before the High Court, he said.

A top executive of a well-known multinational firm said if 50 per cent of the disputed amount was collected through these deposits, it might seriously affect the delivery of justice.

"In fact, we already consider the existing 30 per cent deposit to be very high and therefore we requested a reduction in the deposit requirement on several occasions in the past," he added.

A senior official of the VAT wing of the NBR however said confusion has been created in absence of an explanation of the measure. The ratio of total deposit of the disputed VAT claim will not be higher than 30 per cent, he added.

Apart from the process to seek justice becoming harder, changes to another provision of the VAT law will make it troublesome for firms to adjust input tax credit or claim rebate against paid VAT on inputs.

Only till the end of June, businesses would be able to claim tax rebates on the value of inputs purchased and adjust the money with total payable VAT within two months of the purchase of the raw materials.

Industry insiders said as per the proposed provision, businesses would not be able to seek input tax credit on the whole amount of inputs purchased at a time.

They will be able to claim rebate proportionate to the sale and use of raw materials that are used to make the products. And businesses will be required to seek rebate on inputs in four months.

"This will also force businesses to consume all materials within four months of receipt to avoid significant VAT rebate loss, which is impractical in certain cases for slow moving goods or sudden fall in demand," said the official of the foreign company operating here for many years.

"Besides, a significant amount of working capital will be blocked. Especially when entire industries are suffering for a liquidity crisis due to Covid-19, this new provision will literally kill many industries," the executive added.

Ali said the provision for businesses to claim rebates was not business friendly.

"It may not be possible for a firm to clear all inputs to make a product within four months. And it is more difficult particularly at this time when the Covid-19 crisis affected demand," Ali said.

Snehasish Barua, partner of a chartered accountancy firm Snehasish Mahmud & Co, said a company often procures raw materials in bulk quantities based on lead time, order quantity, seasonality, etc.

In many cases, it may be difficult or even impossible for a company to use all the materials within four tax periods.

It will also be difficult for companies to keep track of dates and costs of materials purchased and used. Companies will be required to customise their software, raising the cost of business, he said.

"As companies also procure services as input, it will be difficult to keep track of monthly, quarterly, half-yearly, annual services received towards production," said Barua.

"In many cases, disputes will arise between companies and the NBR officials over the usage. I do not see any reason why such a long-established provision for obtaining rebate needs to be amended," he said.

On the issue, the NBR official said they were examining the matter. "We will take steps for the ease of all," he said.

VAT, an indirect tax paid by consumers, is the biggest source of revenue for the NBR, bringing in more than 85 per cent of total annual revenue for the state.

The government has assigned the NBR to collect a 14 per cent higher amount in VAT to Tk 125,160 crore in the next fiscal 2020-21 from the revised target of Tk 109,850 crore of the outgoing fiscal year.

The VAT target is 38 per cent of the NBR's total collection goal of Tk 330,000 crore for the next fiscal year.