The government has planned to postpone implementation of the controversial new value-added tax law from July 1 because of the negative impact on people’s life, which could affect the ruling party’s standing ahead of next general election, said finance ministry officials.
Besides, there has been strong opposition from the country’s business community against implementation of the new law which imposes a flat rate of 15% VAT.
Finance ministry sources said the decision to stop the execution of the VAT law was taken at a meeting on June 15 at the ministry auditorium with Finance Minister AMA Muhith in the chair.
The meeting also came up with a plan on increasing VAT collection by Tk17,000 crore in the next fiscal year without implementing the new VAT law. The plan will be placed at the cabinet meeting today, to be presided over by Prime Minister Sheikh Hasina, officials said.
After the meeting, the finance minister may have separate talks with prime minister about the postponement of the new VAT law.
Mirza Azizul Islam, a financial sector analyst and former finance adviser to a caretaker government, said: “I will welcome the government’s move to drop the plan of implementing new VAT law as such a law will have a huge impact at the price level, which is not good for both the economy and the people.”
Earlier, the prime minister had directed the finance minister to settle the crisis over the new VAT rate before she took off an official visit to Sweden.
On June 11, the cabinet meeting with prime minister in the chair reached a consensus on the imperative of postponing the implementation of the VAT law from July 1. But the meeting did not set any new date for enforcement of the law.
The VAT Act 2012 is scheduled to introduce a uniform 15% VAT rate which many believe will raise the cost of living.
A finance division official involved with the budget preparation said: “It is frustrating that the VAT law implementation will be postponed. So how can the NBR meet the budget target of Tk2,48,000 crore revenue generation in the next fiscal year?”
“The non-implementation of the new VAT law will have an impact on the financing budget and is likely to widen the budget deficit from the currently estimated 5.05% of the GDP,” the official said.
The government framed the new VAT law following recommendations from the IMF. Introduction of the 15% VAT rate was one of the conditions of the IMF for handing the $987m worth of Extended Credit Facility to Bangladesh in 2012.
The IMF in its Article IV Consultation Mission report, published recently, welcomed Bangladeshi authorities’ commitment to launching the “modern” VAT Act from July next.
It said: “The planned launch of the modern VAT law in July 2017 and improvements in tax administration are expected to boost tax revenues, providing space for increased public investment and social spending.”
Meanwhile, the present VAT online project is funded by the World Bank window IDA, which provides Tk450 crore, while the rest of the fund is coming from the government exchequer. The project work will be completed by the end of 2018.
If the non-implementation of the VAT law actually goes through, a major portion of the budget speech presented in parliament for the FY2017-18 will become redundant since most part of the speech concentrated on the new VAT and Supplementary Duty Act 2012.
The budget speech has 20 big paragraphs on implementation of the new VAT law and its benefits for the economy and the businesses. The NBR has targeted to collect Tk91,254 crore revenue in the next fiscal year, up by Tk22,579 crore from the revised budget estimation. The amount is expected to be mobilised from VAT.