New Vat Law: FBCCI, NBR at loggerheads

The NBR and the FBCCI are at loggerheads over the new VAT law, reminiscent of past pushbacks from the business community that have delayed its implementation by four years already.

The Federation of Bangladesh Chambers of Commerce and Industries (FBCCI) in a letter to the National Board of Revenue (NBR) on May 5 said the new VAT law may fuel inflation and create unrest in the society if implemented from July 1 without adequate “readiness”.

In reply four days later, the NBR accused the country’s apex trade body of obstructing the implementation of VAT and Supplementary Duty (SD) Act.

The revenue authorities said it made enough preparation to implement the law from July 1.

“The FBCCI has nothing to worry about,” said the revenue authority’s letter addressed to the FBCCI president.

Doubling down on the message, Finance Minister AHM Mustafa Kamal said the FBCCI could raise questions about the government preparedness to implement such a seminal law.

“But we can only find that out if we are allowed to implement the law,” he told reporters before a meeting with NBR high-ups yesterday.

Initially, there was a single VAT rate, which the FBCCI objected to. Now, there will be multiple rates.

“We are making the VAT law in line with their demand. We are bringing in changes in line with their expectations. So there should be no problem,” the minister added.

The NBR too said in its letter that it was working to bring in changes to the new law in line with the decision of a joint meeting between the NBR and the FBCCI on March 31.

Framed on the prescription of the International Monetary Fund, the new VAT law aims to increase revenue collection and establish transparency and accountability in a country that has one of the lowest tax-GDP ratios (about 9 percent) in the world.

VAT, a type of consumption tax, is the biggest source of revenue for the government, followed by income tax and customs tariff.

The new law originally envisaged a uniform 15 percent VAT on goods and services, doing away with the multiple rates under the existing law -- a change that sparked protest from businesses, particularly from the FBCCI on grounds that it would hurt small and medium businesses and stoke inflation.

In the face of protests, the government deferred enforcement of the new VAT system law thrice, the latest being in June 2017, when it announced at the eleventh hour of the postponement by two years.

Later, the NBR formed a joint panel with representatives from the FBCCI to review the act and resolve the standoff.

Then at a meeting chaired by the finance minister with business bodies on March 31, the businesses agreed in principle with the proposal of multiple VAT rates: 5 percent, 7.5 percent, 10 percent and 15 percent.

The meeting also decided to increase the VAT-free annual turnover threshold to Tk 50 lakh from the existing 36 lakh. It agreed to increase annual turnover limit to Tk 3 crore from Tk 80 lakh and hike turnover tax to 4 percent from the present 3 percent.

The FBCCI in the letter said it did not see any visible step by the NBR for enacting revisions in the law.

The federation said it had been demanding impact assessment of the new law, which would replace the VAT law 1991, for the last several years.

Lastly, in February 2018, it demanded a cost-benefit analysis of the new VAT, according to the letter.

The NBR, in its response to the FBCCI, said it had approached 7-8 organisations, namely Dhaka University’s development studies department, the Centre for Policy Dialogue, the Bangladesh Institute of Development Studies and Brac University, for conducting the impact assessment.

“But none of the organisations expressed interest to do such an assessment,” the NBR said, adding that this was why it could not do the assessment.

The NBR also said it would take initiatives in this regard after the passage of the budget for the next fiscal year.

“And the impact assessment will be done out of NBR’s own necessity,” it said, adding that the assessment cannot be a precondition from businesses for replacement of the law for the tax system that has been in effect.

Based on the positive outcome of the meeting on March 31, a follow-up meeting was called on May 2 and representatives from the FBCCI were also present.

But in the middle of the meeting, the representatives requested rescheduling of the meeting after a telephone conversation with someone from the FBCCI, the NBR letter said.

“Therefore, the allegation of not holding the meeting is very woeful. It gives one a perception that the FBCCI is trying to create a barrier to the implementation of the VAT and SD Act 2012,” the NBR said.

The FBCCI in its letter demanded rebate for products where multiple rate would be applied. Otherwise, it will create inflation, it said.

In November last year, the revenue collector formed a high-powered panel to consider the views and recommendations of various trade bodies regarding the new law.

“The recommendations of the committee have been sent to the FBCCI. The FBCCI has not given any opinion regarding the suggestions in the report,” the NBR said, adding that the federation representatives expressed their satisfaction about the report in various meetings.

The FBCCI showed a positive attitude towards the implementation of the new law, according to the NBR letter.

“The initiative to implement this law has been made after resolving the long-running disputes from the business community. Even after that, such a letter from the FBCCI is distressing.”

The NBR also requested the president of the country’s apex trade body to examine the context and reasons behind the issuance of the letter.

Contacted, Sheikh Fazle Fahim, the incoming FBCCI president and first vice president of the present committee, acknowledged receiving a letter from the NBR, but said he was yet to go through it.

“We will respond to the NBR letter soon,” he added.