A holdup in new VAT law

The government may put the new VAT law on hold for another year in the face of opposition by business leaders.

The new development runs counter to Finance Minister AMA Muhith's commitment to the International Monetary Fund that the law would be enforced from July.

“The VAT implementation is back on track and we are firmly committed to its launch in July 2016,” Finance Minister AMA Muhith wrote in a letter to IMF Managing Director Christine Lagarde in October last year.

In mid-May, Muhith said at a meeting of the parliamentary standing committee on the finance ministry that the law may not be implemented in July, a member of the committee told The Daily Star.

The committee opposed the implementation of the new law at that meeting.

A high-level meeting of the government has recently discussed the issue and decided not to implement the law next fiscal year.

The stance has already been communicated to the National Board of Revenue and the next budget proposal has been prepared accordingly.

The new VAT law was passed in parliament in 2012, but its implementation was delayed time and again due to opposition from businessmen and a lack of preparation by the tax authority.

The IMF delayed an instalment of its Extended Credit Facility due to a delay in the new VAT law.

The finance ministry had informed the IMF that prior to placing the new law in parliament in 2012, the new VAT law underwent extensive consultation with the stakeholders. Despite this, the new law has come under criticism by the business community.

To counter the criticism, the NBR and Federation of Bangladesh Chambers of Commerce and Industry formed a joint committee which submitted its report in January last year.

As per their recommendations, some amendments were made to the law, and passed again in parliament in September.

Major changes in the new law are: VAT will be a single rate at 15 percent, the tax base will be determined on the basis of actual transaction values and there would be no pre-approved values or truncated base and limited exemption.

After these, the finance minister again committed to implementing the new law in July this year to the IMF; accordingly, the global lender released its two remaining instalments in one go.

However, the business community began strong protests against the law and threatened to go for an all-out movement.

Commerce Minister Tofail Ahmed also publicly requested the finance minister to implement it gradually. In addition, the NBR sent a detailed report to the finance ministry in April, mentioning the challenges in implementing the new law.

The NBR said it would increase revenue collection but it would not be possible to protect the local industries. It also said the new law is likely to increase the price of essentials and the cost of government development projects would go up. So, the NBR recommended consultation of all related issues at the highest government level.

The official said that if the demands of the businessmen are taken into account, the VAT law will have to be changed again, which is not possible before the budget.

The finance minister will give a detailed statement in parliament in this regard, officials added.

Debapriya Bhattacharya, distinguished fellow of Centre for Policy Dialogue, said the businessmen publicly expressed their opposition to the new VAT law.

“Without solving it (businessmen's opposition) if the law is implemented, the administration will definitely face problems,” Debapriya said at a press meet on the release of CPD's report on the state of the economy.

There is lack of the work plan required for implementing the law, he added.

Mustafizur Rahman, executive director of CPD, said the law will have to be implemented in two to three years. “Implementing 15 percent VAT at all levels in one go would not be proper.”

Both agreed that it was a good law and at some point, it has to be implemented to increase revenue.