New VAT regime to badly affect businesses, consumers | daily-sun.com

New VAT regime to badly affect businesses, consumers

    14 June, 2017 12:00 AM printer

New VAT regime to badly affect businesses, consumers

The government is going to enforce the Value Added Tax  and Supplementary Duty Act, 2012 from July 1 requiring consumers to pay VAT as per a uniformed rate of 15 percent for goods and services. Business bodies have long been opposing the introduction of the new VAT regime arguing that it will badly affect businesses and the consumers.

The government has, however, dismissed the fear. The daily sun organised a roundtable discussion titled “New VAT Rate: Impact on Businesses and Consumers” on June 11 to discuss the matter in detail. AB Bank sponsored the event. Key points of the discussion are as follows:

 

 

 

 



 

 

 

Enamul Hoque Chowdhury
Acting Editor
daily sun
 


I would like to thank State Minister for Finance and Planning MA Mannan and other distinguished participants of the roundtable.


We are here to listen to your thoughtful opinions on the new VAT law. We have arranged the event to find out the ways to resolve the debate created on the new VAT law. The government has to remain conscious so that common people and businessmen are not victimised by the new VAT policy.


The government needs to mobilise revenue to continue the development activities. But the ways the tax revenue is collected must have to be fair.

 



 

 

Shiabur Rahman

Executive Editor
daily sun

 

 

The government and businessmen are at loggerhead over the enforcement of the new VAT regime. The government has announced that it will enforce the Value Added and Supplementary Duty Act, 2012 from July 1 requiring consumers to pay VAT as per a uniformed rate of 15 percent for goods and services. Business bodies have been opposing the new VAT regime arguing that it will badly affect both businesses and the consumers.

 

The government, however, is assuring that the enforcement of the new law will simplify collection of the indirect tax and benefit businesses and consumers. The daily sun organised the discussion to discuss to give the stakeholders a forum to discuss the important issue in detail.

 



 

Ghulam Rahman


President
Consumer Association of Bangladesh

 


There have been some loopholes and shortcomings in the VAT Act, 1991. The government formulated the new VAT law in 2012 but dragged on the implementation for the last few years. Now the government is trying to implement the new VAT law which carries a uniform 15 percent VAT across the board.


The VAT rate will not exceed 15 percent under the new law though the VAT Act, 1991 entails more than 15 percent VAT in some cases.


As far as I know, there will be no VAT on essential products. The government will have to make sure that essential commodities are kept out of the VAT net.    


Supplementary duty has been increased for some products like soap, toothpaste and shampoo. I think the government should lower the VAT on these products.


The new VAT law is a good one. Businessmen will be benefited if it is executed smoothly. Nonetheless, the consumers will be sufferers as they will have to bear the burden of VAT.

 



 

 

Dr. Nazneen Ahmed  


Senior Research Fellow  Bangladesh Institute of
Development Studies

 


The implementation of the new law will be a tough job without a proper roadmap. We have been hearing about an imminent implementation of the new law for around three years, but there has been a lack of proper planning.


Semi-implementation of the law would not bring any benefits and it might rather spread apprehension among all stakeholders.


The government announced a uniform VAT rate in the beginning. But now they are going to implement it by providing huge VAT exemption, which might put pressure on the existing VAT and taxpayers.


I think the businesses have no argument over the implementation of the new law, but they have a little confusion over the VAT rate.

 



 

 

Md Zakir Hossain


Deputy Project Director
VAT Online Project

 


The government has taken the move to implement new VAT law, formulated through holding a series of discussions with stakeholders and various quarters, as the existing law of 1991 failed to create a business-friendly environment.  


We hardly discuss the reasons behind our failure to fetch major investments in Bangladesh.


The tax regime is the key factor behind our failure in attracting large investments. A country fails to get foreign direct investments if its tax policy remains uncertain.


We will only be able to attract FDI if we can assure a neutral VAT policy.  


Consumers pay the VAT but the VAT policy has to be neutral for the businessmen as well.


The VAT calculation system needs to be made easier. We have to make sure that businessmen are not harassed in the process of VAT payment.   
The government has launched the online VAT registration and collection system to put an end to the harassment facing the businesses. We have also launched email services for the taxpayers. Our goal is to make VAT collection offices paperless and the process more convenience.


The government is also planning to launch mobile apps to make the VAT collection process easier than ever. 

 



 

 

Prof M Shamsul Alam


Energy Adviser
Consumer Association of Bangladesh

 


A section of economists is misguiding the government about the VAT issue like some experts misled the government in the 2009-10 for setting the clock one hour back to save 250 megawatts of electricity.


They are now trying to convince the government the new VAT law will help fetch more revenue and lower the actual VAT rate at the consumer level. It is a deception on the nation as it is possible only in magic, not in reality.  


The government should not walk into their trap as the countrymen never want development at the cost of their solace. Though they are claiming of trying to make the nation smart, they are in fact pushing the citizens into the trap of price spiral.


My estimation suggests that the VAT rate on gas and electricity is as much as 29 percent.


If needed, we would go back to the kerosene age, but the government should lower the VAT rate on energy products.

 



 

 

Khondoker Golam Moazzem


Research Director
Centre for Policy Dialogue

 


There are many questions in consumers' minds about the VAT law. Theoretically, the new VAT law won't have any negative impacts on living cost, but the reality is completely different.


If the government implements the uniform VAT system at a relatively lower rate, the impacts at the consumer level may ease.


The government has excluded a large number of products and services from the VAT net, which restricts the innovativeness of the new system. As a result, the government will have to realise more VAT or tax from the existing VAT or taxpayers.


The huge VAT exemption list, the inclusion of some nonconventional products, has put the innovativeness of the law in question. It has been planned to increase the number of electronic cash register by another 40,000 from existing 10,000. During the implementation stage, the honest taxpayers might experience disparity for this.


There is no escape for the consumers from the inflation shock triggered by the new VAT law, and this is an issue that should have been addressed in the proposed budget.

 



 

Md Helal Uddin


President
Bangladesh Dokan Malik Samity, Dhaka

 

 

The government passed the new VAT law in 2012 ignoring proposals from the businessmen. We have placed seven proposals but not a single proposal has been accepted.


The consumers pay the VAT in the final stage but businessmen have to pay VAT in advance. Businessmen pay VAT at source.


Businessmen will have to face huge losses if they fail to realise VAT from consumers and retailers.


VAT collection has been increased about 30 percent over the last 20-22 years. It was made possible by the contribution of the businessmen.


Before being rigid about the collection of VAT at an increased rate, the government has to think about the election as there is a relationship between the vote and VAT. Former Finance Minister Saifur Rahman launched VAT system in 1991 and then the BNP government failed to assume power in 1996. The incumbent government carried out massive development in last 6 to 7 years.  But it should keep the VAT related issues in mind as the national election is knocking the door.


The price of commodities will surely go up due to high VAT rate. The government will increase its revenue earning from VAT to Tk 30,000 crore from Tk 20,000.  This thrust will surely have a negative impact on commodity prices.


The decision of hiking excise duty on bank deposits is also illogical. Also, it will not be logical to create chaos over the collection of VAT as it may obstruct ongoing development works of the government.

 



 

 

M A Mannan


State Minister
Finance and Planning

 


I understand that it is very complicated matter. Discussions are being held everywhere on this issue. The benefit of this is that we are getting a more clear picture of the issues gradually. Although I am not an expert on this, I think we're not doing anything out of the world. VAT exists in nearly 169 countries, including high and low-income countries. It also exists in neighbouring India and Nepal. This is not a subject very unusual.


Why it is popular and accepted all over the world? Because it is universally applicable and it is a good tool in terms of equity. We have wiped out 80 percent of the entire VAT landscape for the benefit of low-income people. We are committed to bringing welfare as well as reducing poverty. A question has been raised about the 15 percent VAT rate.


But eminent economist Dr Farashuddin has estimated that global VAT average at 14.8 percent. We are very close to global average. I can honestly tell you that it is not imposed by the IMF; they can only suggest us. A universal rate is being introduced for ease of VAT collection. The decision about the single rate has been taken after discussion with the business community.  


The VAT law is not being introduced for doing harm to anybody. Firstly, we wanted to create a level playing field, ensure uniformity and ease of VAT collection. Secondly, we tried to provide benefit to low-income people. And thirdly, we want to make a Digital Bangladesh and we want to boost the use of modern technology everywhere. ECR is being discussed widely. But there is no necessity of ECR anymore. Only a smartphone with an app is enough for getting the job done.       


The new law has not been enacted to hurt people. This government is a very business-friendly one and it believes that private sector will steer the future development of the country. The parliament is also discussing the issue and will take a final decision regarding this at the end of this month.

 



 

 

Priti Chakraborty


Director
Federation of Bangladesh Chamber of  Commerce & Industry

 


The government is going to implement new VAT, which is a good initiative. In Bangladesh, around 70 percent businesses are SME entrepreneurs. Is it entrepreneurs' friendly? It should be discussed.


The new 15 percent uniform VAT will put pressure on SME entrepreneurs as the prices of products and cost of doing business will shoot up due to the VAT law, resulting in a more stiff completion in this sector.


Bangladesh has not earned that capacity to implement such as VAT law and the majority of the population does not understand the new law.


Those who will not be able to cope with the new system might face harassment in the process.


The new law is not modern in terms of its advance tax imposition provisions.


The new VAT rate will definitely increase inflation, which is a matter of concern.

 



 

 

Selim H Rahman


President  
Bangladesh Furniture Industry  Owners Association

 


The new VAT law is a good one, we have no doubt about it but the implementation will be the real challenge. To some extent, the consumers have to take extra pressure triggered by the uniform VAT rate.


The alternative of wooden furniture is getting popularity and we import medium-density fibreboard (MDF) as raw materials for furniture. The government recently started assessing VAT on MDF at 41 US cent on the raw materials we import at 28-30 US cents.  If the government continues to assess higher VAT rates on raw materials, it will affect the prices of furniture. The consumers will have to bear the brunt ultimately.


Since the wood out is decreasing in the country, alternative furniture is gaining popularity in the local market. Some provisions of the new VAT law will discourage the entire furniture sector.

 



 

 

Abu Reza Md Yeahia


Deputy Managing Director
Islami Bank Bangladesh Ltd

Since the government has proposed increasing excise duty on bank accounts, many depositors have begun withdrawing their deposits from banks.

 


The new budget has proposed to raise the excise duty from Tk 500 to Tk 800 on accounts with the balance of over Tk 1 lakh and below Tk 10 lakh.


Though the excise duty on bank accounts exists since 1947, how the issue has been included in the budget has steered widespread criticism across the country.


The depositors usually keep lesser amounts of money in banks when they do not find any investment choices.  Besides, many of the depositors pay 2.5 percent of their deposits as zakat.


If the government hikes the excise duty, the depositors will be aggrieved and the government should take their grievance into account prior to taking a final decision regarding this matter.

 



 

Kamrul Islam, FCA


First Vice-President
Dhaka Chamber of Commerce & Industry

 


The new VAT law is a good one, we have no doubt about it but the implementation will be the real challenge. To some extent, the consumers have to take extra pressure triggered by the uniform VAT rate.


The alternative of wooden furniture is getting popularity and we import medium-density fibreboard (MDF) as raw materials for furniture. The government recently started assessing VAT on MDF at 41 US cent on the raw materials we import at 28-30 US cents.


If the government continues to assess higher VAT rates on raw materials, it will affect the prices of furniture. The consumers will have to bear the brunt ultimately.


Since the wood out is decreasing in the country, alternative furniture is gaining popularity in the local market. Some provisions of the new VAT law will discourage the entire furniture sector.

 



 

 

Zahir H Chowdhury


Vice-chairman
Bangladesh Auto Re-Rolling & Steel Mills Association

 


I think steel is an essential commodity and it should be exempted from VAT. I would like to call upon the government to keep the raw materials of the steel industry including scrap and electricity outside the purview of the VAT net.


The government should keep both the businesses and consumers in this sector outside the purview of VAT.


If the producers can't produce the steel products including rods at lower cost, how they can sell those at cheap prices?

 



 

 

Md Shahidullah


Director
Federation of Bangladesh Chamber of  Commerce & Industry

 


With the imposition of flat VAT rate, the country's auto re-rolling industry will face a setback as it is dependent on imported raw materials and scrap.


Finished good price will go up by 20 percent as we will have pay higher electricity bills. Housing is one of the five basic needs. So it should be provided with the facility of tax exemption.


For easing pressure on the sector, we want to pay 5 percent VAT until 2019.

 



 

 

A Karim Mojumdar


Organising Secretary
Bangladesh Furniture Industry  Owners Association

 


The furniture sector is now a dead sector. This sector has created 30 lakh formal and non-formal jobs both for educated and non-educated people. Indirectly, nearly one crore people are dependent on the sector. But the government is not taking care of us.


We have held discussions with the government on several occasions, but there has been no outcome whatsoever.


It is not fair that the burden of VAT is being passed on us as the government is picking up large projects.

 



 

 

Niaz Rahim


President
Bangladesh Supermarket Owners Association

 

As a result of the 15 percent flat VAT rate, a feeling of apprehension of price hike has gripped the common people of the country.


I have to directly deal with retailers and consumers as a representative of the supermarket owners of the country. I think the new VAT law will badly affect the retail business.


Similarly, the 15 percent flat VAT rate will result in price spiral, which will add to the misery of the consumers who are already exhausted with repeated spells of price hike.


The businesses and the National Board of Revenue (NBR) officials shouldn't be competitors --- they rather should complement one another.


We are not clear how the government will operate the new VAT system, but I hope the government will not push the business into a tight corner through the new VAT law.

 



 

 

Rezwanul Haque


General Secretary
Bangladesh Mobile Phone
Importers Association

 

As the government wants to digitise the country, it has to increase the number of smartphone users.


Currently, in Bangladesh, only 27 percent mobile phone users have smartphones and the growth in the number of smartphone users is not satisfactory mainly because of high prices of smartphones.


So the government should reduce the VAT rate on smartphones if it really wants to digitise the country and introduce e-governance.


Given the situation, the government has to backtrack on increasing the VAT rate on smartphones by 5 percent in the new VAT law.

 



 

 

 

 


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