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15% flat VAT: Bane or boon?

  • Published at 02:19 am June 2nd, 2017
  • Last updated at 02:42 am June 2nd, 2017
15% flat VAT: Bane or boon?
Despite the grave concern expressed by both businessmen and consumers, the government is going ahead with its plan to impose the flat 15% value-added tax (VAT) for the next three years in line with the Value-Added Tax and Supplementary Duty Act, 2012. In his budget speech at parliament on Thursday, Finance Minister AMA Muhith announced that the revenue administration was fully prepared to implement the new VAT law from July 1. “The VAT will be applicable at a single and uniform rate. This rate will be 15%, which will be unchanged over the next three years,” the minister said. The new VAT rate has been the topic of many discussions over the past few years; consumers and business owners are worried about how the new VAT law would affect the living cost of common people as well as small businesses. The finance minister hinted at some changes in the law and proposed to exempt 1,033 essential commodities from VAT so the market of daily commodities remains stable. dddddddddddddd The exempted commodities include locally produced primary food items, agriculture, livestock, fishery products and life-saving drugs. The public transport services, public health and medical services, education and training services will remain out of the VAT net as well. Non-commercial activities of charitable and cultural organisations will not be taxed either, Muhith said. He further said the VAT exemption facility will cover the local LPG cylinder production until June 30, 2019 “considering the importance of the fuel and power sectors for our industrialisation and for keeping the price stable.” “As a result of these exemptions, the market prices of daily essentials are expected to go down; they are not supposed to increase under any circumstances,” the finance minister said in his speech. For the small businesses, the finance minister proposed a few changes based on some recommendations put forward by the business community. He said the threshold for annual turnover will be increased to Tk36 lakh from Tk30 lakh for small businesses, which means businesses with a turnover of Tk36 lakh or less will be exempted from the VAT. He also proposed to raise the threshold for registration under the VAT law to Tk1.5 crore from Tk80 lakh for large businesses. Businesses with a turnover of Tk1.5 crore or less will pay only 4% VAT. The finance minister’s reassurance about a stable market and the proposed reforms to protect small businesses’ interests have done little to assuage the concerns of some experts. “The uniform 15% rate of VAT will hit the small and medium enterprises (SMEs) hard, and the inflation will go up,” said Shafiul Islam Mohiuddin, the newly elected president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI). “We demanded that the government conduct an impact assessment study before implementing the new VAT law, but they did not pay any heed.” However, he appreciated Muhith’s proposal to withdraw VAT on e-commerce to help boost the growing industry. Meanwhile, some experts are hopeful that the new VAT law will not adversely affect people’s lives. “The living cost of common people will not go up as a large number of essential commodities will be exempted from VAT,” said Dr Nazneen Ahmed, senior research fellow at Bangladesh Institute of Development Studies (BIDS).