Supplementary duty should go in phases

The Policy Research Institute yesterday said the government should reduce supplementary duty in phases, instead of bringing it down in one go, to implement the new VAT law, which may come into effect in July.

The full application of the VAT and Supplementary Duty Act 2012 will have disruptive implications for the manufacturing sector with strong resistance from import substituting producers, the PRI said.

The research organisation placed its recommendations for the national budget for fiscal 2016-17, at a discussion with senior officials of the National Board of Revenue, at the NBR headquarters.

The PRI said the full application of the new VAT law will eliminate supplementary duty (SD) on all tariff lines, except for 241 products.

Tariff lines are products defined at a highly detailed level for the purpose of setting import duties.   Currently, SD is applicable to 1,362 products at the import level.

It may not be possible to go for the duty cut now considering the political and economic situation, PRI Executive Director Ahsan H Mansur said. “So we suggest removing the duty in phases.”

The former economist of the International Monetary Fund said no country or trade bloc would want to sign free trade deals with Bangladesh because of the country's highly protective tariff structure.

He said the government should consider easing the duty structure, because the duty-free market access that Bangladesh now enjoys in many markets would die out once the country leaves the league of least developed countries by 2025.

Mansur also suggested the tax authority periodically monitor whether the companies are deducting or withholding tax from the salaries of its employees.

There is no system for the employers to submit quarterly report on tax to the NBR, he said, citing that only 3 percent of salary income is deducted at source, although there is scope to expand collection through deduction.

The PRI also recommended the tax authority increase tax on tobacco products, especially low-priced cigarette, biri and other tobacco-based items, to increase revenue collection and discourage consumption of such items.

The consumption of low-priced cigarettes has increased due to tax reduction at the beginning of the current fiscal year, Mansur said.

The PRI said the tax on low-priced cigarettes should be raised in a way that the price of each stick goes up by Tk 1 to Tk 3 in the next fiscal year.

A floor price should be fixed for cigarettes so that none can reduce the prices from that level, said Mansur.

The PRI also suggested imposing higher tax on biri. The price of each stick of biri should be Tk 1, Mansur said. “We will not miss out on anything because of the hike in taxes on such items.”