People’s Voice

On the legal framework of VAT

Imposition of levy at a high rate as well as penalty in mere non-compliance would result in injustice.
From 1st July 2019, the new Value Added Tax and Supplementary Duty Act (VAT & SD Act) of 2012 has been activated. The law is well-drafted and if implemented through the proper activation of the VAT Online system, it can reduce corruption in the revenue scenario of Bangladesh. Some features of the Act are pro-business. For example, the VAT registration and monthly return submission can be done online without requiring the people to face the officials regularly. Further, the increase of mandatory registration threshold from 80 lac to 3 crores is a happy moment for many businesses. Furthermore, the businesses are free from price declaration, and thus, they are free from undue hassles. In the new Act, transfer of stock from one unit to other is VAT free, previously which used to create an opportunity to harass the businesses and their vehicles. Transfer of goods or services from one branch to another separately registered branch of the same economic activity is no longer treated as supplies, therefore not liable to VAT. The VAT and SD Act prohibits the Commissioner from sending the case on remand for reconsideration, saving time and cost of adjudication. Amendment opportunity to submitted VAT return is a remarkable development.

However, some changes made by the new Act are problematic. Determination of Fair Market Value instead of price declaration and taking of rebate are the issues that will create complexities. Tax refund to foreign tourists is a good addition, whereas VAT on e-commerce and capital of SEC listed Companies (specially for multinationals) are bad additions. Some changes of the new Act are very technical. Multiplicity of VAT rates is a big loophole of the new Act. 5%, 7.5%, 10% and 15% slabs will create complications in VAT administration. The businesses will try to prove them under one slab, whereas the VAT officials will try to prove them under another slab, resulting in huge anomaly.

Clarifications regarding offences relating to revenue matters and their punishments is a very vital issue, as wrong determination of offences and non-compliances are the main causes of backlog of millions of revenue cases. The term ‘evasion’ should be defined and considered as ‘offence’. Mere ‘non-compliance’ or ‘irregularities’ should not be considered as ‘evasion’, therefore not punishable like offence. There should have a causal link among the offence and its intention. Imposition of levy at a high rate as well as penalty in mere non-compliance would result in injustice and will give rise to increasing litigation and obstruct a huge amount of government revenue.

Therefore, it is recommended that the terms ‘offences’, ‘punishments’, ‘irregularities’, ‘non-compliance’ should be more clarified through SROs. Furthermore, at least five benches should be formed in the High Court for hearing of the cases in revenue issues. Lastly, it is recommended that Alternate Dispute Resolution (ADR) mechanisms should be activated.



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