World Bank, IMF unhappy with VAT law suspension

The World Bank (WB) and the International Monetary Fund (IMF) has sent a letter to the Finance Ministry saying they were disappointed about the VAT Law 2012 not being implemented this fiscal year. In the letter, the World Bank asked the government to implement the law immediately saying without the new law, the government’s revenue will slow down along with negatively impact GDP growth and create difficulties in getting foreign financial assistance. The WB and IMF said the government has stalled the implantation of the new VAT law the very last minute even though the law was complete. They collectively said that it was illogical to fear an increase in the inflation rate. They warned that keeping the old VAT law would be bad for Bangladesh’s relationship with the country’s development partners, adding: “The government has failed execute the 2012 VAT law for five years.” The two development partner suggested that without the implementation of the new VAT law, Bangladesh’s aid and credit standard might be impacted. Both the IMF and the WB has said they will work with the government to find an equitable solution to any problems that government might have with the new VAT law to get it implemented. The development partners said the government will find it hard to finance and implement the new budget in the beginning of the fiscal year. They say the government will also be hard-pressed to combat the increasing budget deficit. This will create an overall pressure on the entire economy. Finance Minister AMA Muhith on Thursday admitted that it will be hard for the government to cover the shortfall in VAT collection target because the new VAT law was not implemented. “We will prepare a plan for alternative sources of earning to meet the deficit which would be exactly or less than Tk20,000 crore. At the end of this month, I will talk about how the shortfall in VAT collection can be made up,” he said. According to the minister, the Finance Ministry had planned to earn an additional Tk20,000 crore by enacting the new VAT law but, the deferral in implementing the law has raised the possibility of the earning to drop. The controversial law was set to be effective from July 1 but, Prime Minister Sheikh Hasina during the budget session requested him to postpone the implementation of the uniform 15% VAT for at least two years. The WB and IMF had earlier welcomed the proposed VAT law when the government announced that it would be implemented in the budget for this fiscal year in the parliament. After the budget was passed without the new VAT law, the development partners criticised the government saying that a 7.4% GDP growth cannot be achieved without it.