Govt panel proposes multiple VAT rates | The Daily Star
12:00 AM, January 20, 2015 / LAST MODIFIED: 01:53 AM, March 08, 2015

Govt panel proposes multiple VAT rates

Govt panel proposes multiple VAT rates

A government review panel has suggested the revenue authority impose multiple VAT rates, instead of the universal 15 percent in all areas, to help flourish micro and small businesses and protect consumers.

“Multiple rates of VAT are present in many countries, including France, which is the pioneer in introducing value added tax,” said Md Jashim Uddin, co-chairperson of the committee and a businessman.

Besides, a 15 percent VAT will lead to spiral in prices of various goods and services and affect consumers, he added.

Businesses said, due to the 15 percent VAT, local products will face tough competition with the imported ones.

The nine-member panel, headed by a former National Board of Revenue member, put forward its recommendations to Finance Minister AMA Muhith early this month.

The NBR formed the committee with representatives from the business community and the government, as the Federation of Bangladesh Chambers of Commerce and Industry demanded review of the new law before its implementation.

The new VAT and Supplementary Duty Act 2012 is expected to be effective from July next year. It will replace the existing VAT Act 1991, which VAT officials say suffers from distortions due to presence of various types of VAT rates.

The new law, framed at the prescription of the International Monetary Fund, will end the scope for package VAT, VAT determined on a truncated basis and tariff value system that various sectors now enjoy.

The FBCCI had earlier said that the government consulted businesses when the law was being formulated but their recommendations and concerns were not reflected in the final law.

The review panel for the law suggested raising the ceiling of turnover VAT to Tk 36 lakh from Tk 24 lakh to facilitate growth of small and cottage industries, rural enterprises and to reduce hassles of retailers and small businesses.

The committee also recommended increasing the upper limit of annual turnover VAT to Tk 1.5 crore from Tk 80 lakh for companies in the manufacturing, trade and services sectors. It, however, recommended that manufacturing firms, having turnover between Tk 36 lakh and Tk 1.5 crore, should be charged only 3 percent VAT on turnover. 

The committee also suggested slapping only 2 percent VAT for traders having turnover above Tk 36 lakh. But the traders will not be able to adjust the tax paid during import.

Instead of imposing 15 percent VAT on all imports and supplies, the report proposed slapping VAT at reduced rates for the firms that are unable to take input tax credit.

The panel said such rates are present in many developed and developing countries such as France, China, Malaysia, India and Pakistan.

It said reduced rates of VAT are now applicable in various sectors such as 5 percent VAT on electricity supply and 5.5 percent on construction. The report said these sectors are very sensitive and unable to bear the financial burden of 15 percent VAT.

The committee, however, could not reach consensus in some issues raised by the representatives of the FBCCI.

The apex trade body was against the provision in the new law that gives power to revenue officials to freeze bank accounts and confiscate property of VAT defaulters.

But the NBR representatives in the committee said such provisions are already present in tax related laws.

FBCCI President Kazi Akram Uddin Ahmed said multiple VAT rates are present in many countries and are imposed on the basis of the types of business.

“All will be busy to evade tax if 15 percent VAT is imposed on all sectors. Reduced rates will facilitate VAT collection. We hope the government will take our issues into consideration,” he said.

Finance Minister AMA Muhith said on Sunday that some minor changes will be brought to the law, which will be acceptable to both the IMF and the business community.

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