Unable to implement the Value Added Tax and Supplementary Duty Act 2012 for a number of years, the government is looking the gradually increase VAT revenue across the board to avoid adverse reactions when the Act is finally implemented.
As part of the move, the government is likely to increase VAT in many of Bangladesh’s service sectors from the next fiscal year. With this goal in mind, the National Board of Revenue (NBR) has taken initiatives to revise the Value Added Tax Act, 1991.
The revised draft is set to be placed before the cabinet committee for evaluation, and the revised VAT law will be announced along with the budget for the next fiscal year, NBR sources told the Dhaka Tribune.
Under the existing VAT law, some of the service sectors in the country enjoy special benefits, such as a reduced VAT rate, which is known as the ‘Truncated Base Price’. Apart from the tax benefits, the service sector and also some of the goods produced locally enjoy fixed tariff rates.
According to insider sources from the NBR, some of the special facilities will be removed in the revised VAT law.
Speaking on the issue, experts and businessmen warned that the cost of services and products will surely go up if the compressed base price and fixed tariff value facilities are withdrawn. Local consumers will be indirectly affected by the increased service costs.
At present, a total of 15 services pay VAT on a truncated basis under this special facility. Besides, VAT has been levied at fixed tariff value on 70 local products and services, such as local suppliers, construction companies, power distribution companies, local brand clothing dealers, furniture dealers and land development agencies.
If the ‘Truncate Base Price’ facility is withdrawn from those sectors, the imposed VAT will jump to 15% from the current rate of 1.5 to 10%.
Responding to query, a senior official of the NBR said the existing ‘Truncated Base Price’ and tariff value facilities in the current VAT law will be gradually withdrawn.
The goal of the NBR is to eliminate this inconsistency by implementing the same rate of VAT in all spheres. For this, initiatives have been taken to amend the VAT law 1991, he added.
According to NBR sources, Finance Minister AMA Muhith has already given his consent to the new VAT policy.
The NBR is planning to amend some sections of the existing VAT law to withdraw facility.
The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) Adviser Manzur Ahmed said the revenue board must thoroughly assess the existing ‘Truncated Base Price’ before making any changes to the policy.
“If the service sectors do not have the ability to pay VAT to the NBR on actual transactions, these sectors will be affected severely,” he added.
The implementation of the amended VAT law has been postponed for the past two years due to strong objections from the local traders and businessmen.
However, the NBR is now trying to bypass the objections by increasing the VAT rate by raising fixed tariff under the existing law.
Vice President of Bangladesh Shop Owners Association, Rezaul Islam said the NBR must hold discussions with traders before making any changes to truncated value and fixed tariff rates in the VAT law.
“If a decision is made without consulting all stakeholders, it might not have a positive effect on the local business community,” he pointed out.
A businessman, on condition of anonymity said, as there is no effective rebate system in the existing VAT law, the government should refrain from changing the truncated base value and tariff value.
He expressed concern over the fact that the government could gradually implement a new VAT law with 15% uniform rate in most, if not all sectors in Bangladesh.