Damocles’ sword

Mahmudur Rahman | Published: January 04, 2019 21:25:57

It is one of the most feared fiscal laws in the offing but it will be implemented in the 2019-20 fiscal bound as it is to a tranche of grant from the World Bank. The new VAT  (Value Added Tax) law threatens to spark off a new round of inflation as goods and services will certainly become more expensive. The National Board of Revenue (NBR) has held several rounds of discussions with businesses before putting the law up to parliament and it took Prime Ministerial intervention for the Act to be postponed for two fiscal. But recently the Federation of Bangladesh Chamber of Commerce and Industry (FBCCI) has called for an impact assessment to be held before implementation of uniform 15 per cent VAT by abolishing package VAT. This assessment will provide insight into the impact on the end consumer, thereby providing a clearer picture of what it does to business dynamics.

The current law in itself leaves too many lacunae - ranging from item-specific accounting to proper receipts - to be termed robust. The 'package' VAT on goods and services was almost like an afterthought. Even worse is the growing tendency to impose tax on tax through a complicated set of rules. Till today, VAT paid on tobacco products and other products are masked under the current Maximum Retail Price (MRP) phenomenon and there's no redress for consumers to be never allowed to buy such products at MRP.

Value Added Tax on government fees is even worse in terms of fairness and is eased in so as to be made unavoidable. Tax on motor vehicle fitness is one such glaring example that begs the question as to how unregistered or fitness-less vehicles can ply the roads.

The biggest impact of VAT will be on small businesses such as bakeries and confectioners that help run the wheels of economy and yet are unstructured for the majority. Such unstructured business will not just need a way forward in calculating VAT but also their drawback on inputs most of which are non-VATable kitchen produce such as loose eggs, sugar and the like. Packaged goods already have VAT administered so it is mind-boggling as to how further VAT is charged on such goods purchased from supershops. If anything, it causes two prices for the same product.

For their part, the NBR is reported to be carrying out impact analysis based on discussions with the trade including differential rates of VAT. It may be mentioned that such rates are prevalent in other developed countries ranging from cold food versus heated food and energy used at home versus in commercial establishments. Unless truly justified, differential rates at odds with the World Bank may give rise to complications.

Impact assessment is required at the different stages of VAT imposition including import, distribution, wholesale and retailing. The latter becomes crucial given the unstructured retail universe where electronic records and books are unavailable. There are many who feel the law as it is will cause disorder and disruption to businesses and unnecessary rise in the cost to the end consumer.


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