New VAT law must be acceptable to all
THE NBR and the FBCCI are at loggerheads over the new VAT law, reminiscent of past pushback from the business community that have delayed its implementation by four years already. The Federation of Bangladesh Chambers of Commerce and Industries (FBCCI) in a letter to the National Board of Revenue (NBR) on May 5 said the new VAT law may fuel inflation and create unrest in the society if implemented from July 1 without adequate readiness, while the NBR replied they have taken enough preparation.
Initially, there was a single VAT rate, which the FBCCI has registered their objection. The NBR said that they are making the VAT law in line with their demand by incorporating multiple VAT rate instead of flat rate. Framed on the prescription of the International Monetary Fund, the new VAT law aims to increase revenue collection and establish transparency and accountability in a country that has one of the lowest tax-GDP ratios (about 9 percent) in the world.
VAT, a type of consumption tax, is the biggest source of revenue for the government, followed by income tax and customs tariff. The new law originally envisaged a uniform 15 percent VAT on goods and services, doing away with the multiple rates under the existing law -- a change that sparked protest from businesses, particularly from the FBCCI on grounds that it would hurt small and medium businesses and stoke inflation. In the face of protests, the government deferred enforcement of the new VAT system law thrice, the latest being in June 2017, when it announced at the eleventh hour of the postponement by two years.
The businesses agreed in principle with the NBR proposal of multiple VAT rates: 5 percent, 7.5 percent, 10 percent and 15 percent. The meeting also decided to increase the VAT-free annual turnover threshold to Tk 50 lakh from the existing 36 lakh. It agreed to increase annual turnover limit to Tk 3 crore from Tk 80 lakh and hike turnover tax to 4 percent from the present 3 percnt.
For the betterment of business and the citizens, the NBR and the FBCCI should come out of the loggerhead over new VAT implementation.