The new VAT law, to be effective from next month (July), will cause price hike of commodities at consumer level, the PricewaterhouseCoopers (PwC) has said.
According to the new law, the products paying less than 15 per cent value added tax (VAT) would not get input tax credit. Thus, producers of these goods will be forced to raise their prices.
"Now I am paying Tk 15 as VAT for some products. For these, I will have to pay Tk 17.70 as VAT from next month," said Pulak Saha, a partner of the PwC India, at a post-budget discussion in Dhaka on Tuesday.
The finance minister had said in the past that he would formulate the tax structure in a way that prices of commodities would not go up, but would go down or remain same, he noted.
The new act has decreased the VAT rate of some products to 10 per cent and 7.5 per cent from the existing 15 per cent. As a result, the products have lost the eligibility of enjoying input tax credit, and their prices will go up, Mr Saha added.
He, however, opined that every reform measure has initial heat, but if that can be absorbed, a positive result will come in two to three years.
Mamun Rashid, Managing Partner of the PwC Bangladesh, said his organisation worked with the Ministry of Finance (MoF) for preparing recommendations on four issues - non-performing loans, national pension scheme, rejuvenating bond market, and crop insurance.
He said the PwC Bangladesh was asked to make recommendations by analysing how the neighbouring countries are dealing these issues successfully.
Sushmita Basu, another partner of the PwC, said the proposed budget is a 'long-term growth-oriented' one.
She noted that from fiscal year 2005-06 until now the country's foreign currency reserve, export, import and many other indicators have gone up. This 'growth-oriented' budget has been prepared to maintain the trend.
The government has moved to raise the contribution of income tax to total revenue collection from the present 35 per cent to 50 per cent by 2021. It is possible by widening tax coverage, on which the finance minister has focused.
Ms Basu further said the minister has also widened tax base to raise earnings. For example, he has imposed 15 per cent tax on the listed companies, if they provide stock dividend instead of cash dividend.
"In the past, dividend receivers paid tax. But this time the companies are taxed for paying stock dividend."
She opined that the main targets of the proposed budget is widening coverage, tax base, and bringing investment.
Ms Basu supported the proposal of taxing retained earnings of the listed companies, although representatives of foreign investors in the country have already criticised the move, saying it will lower investment flow.
She said if retained earnings of the companies go to the shareholders as cash dividend, they will circulate the money in the economy either in the form of investment or spend for other purposes.
The budget proposed to levy 15 per cent tax, if total retained earnings exceed 50 per cent of the paid up capital of a listed company, whether it pays dividend or not, she added.
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