VAT: A mixed bag

The government has proposed to withdraw value-added tax (VAT) on a number of products and services to encourage local industries to grow further.

Pharmaceutical makers will be able to export medicine samples worth Tk 1 lakh free of VAT instead of the existing quota of Tk 30,000.

The 15 percent VAT levied on licence issuance and renewal fee for jute and jute products and solar panel batteries have been withdrawn. The recycling of plastic waste also got VAT exemption.

Nutrition premix in animal food to protect domestic livestock, electricity bill against cold storage service, medicines for acute lever-related diseases, iron scraps, iron oxide, energy-saving bulbs and electricity bills for development of high-tech parks will also get exemption.

Services provided through mobile SIM, cigarettes and private education will be costlier. Credit rating and financial analysis-related activities will be subject to 15 percent VAT.

VAT for retailers and wholesalers have been increased in the proposed budget.

A small retailer who used to pay Tk 3,000 as turnover tax will now pay Tk 3,600, while a 4 percent trade VAT has been proposed for super shops in place of the existing 2 percent.

The finance minister has also increased the VAT on gold and silver products to 4 percent from the existing 3 percent.

Instead of a flat 3 percent VAT for the construction sector, a VAT structure based on floor space has been proposed.

For instance, a 1.5 percent VAT has been proposed for spaces of up to 1,100 square feet, 2.5 percent for 1,101 to 1,600 square feet and 4.5 percent for over 1,600 square feet. 

Mustafizur Rahman, executive director of the Centre for Policy Dialogue, said some measures have been taken to protect the local industries.

“But tax or duty is just a part of a total business cost. The cost of doing business must be reduced to enhance the competitiveness of domestic industries,” he added.

Nasiruddin Biswas, chairman and managing director of Nasir Group of Industries that make energy-saving bulbs, has hailed the extension of tax exemption until June 30, 2017 for the sector.

Consumers get the benefits of this tax waiver as locally-made products are 40 percent cheaper than the imported ones, he said.  

In his budget speech, Finance Minister AMA Muhith also vowed to implement the new VAT law from July 1, 2016 despite businesses' demand to delay it further.

Under the new law, a single VAT rate of 15 percent will be imposed at all levels -- from the import to production and retail levels instead of the existing multiple rates.

As part of a transition to the new law, some reform proposals, regarding customs and supplementary duties, have been proposed in the budget for fiscal year 2015-16.

The number of slabs for customs duty has been increased to six from five.

The existing customs duty rate of 2 percent on capital goods would be reduced to 1 percent.

The finance minister also proposed to reduce the regulatory duty to 4 percent from the existing 5 percent.

The budget has also lowered supplementary duties on 91 products to pave the way for gradual reduction of import taxes in line with the international trade liberalisation rules.

It increased supplementary duties on 81 products to ensure the growth of the local industry by protecting them from outside competition.

The supplementary duty on imported fish has been increased to 20 percent from 10 to 15 percent now, while that on frozen shrimps has been increased to 20 percent from the existing 15 percent. 

The duty on finished chocolates has been lowered to 20 percent from 30 percent and that on pasta went down by 15 percentage points.

Some 20 percent duty was imposed on tyres used in motorised vehicles.

The duty on engines used in two-stroke and four-stroke auto-rickshaws and three-wheelers was increased to 20 percent from 15 percent. A 20 percent duty was also levied on electric battery-run vehicles.