When Value Added Tax (VAT) was introduced in Bangladesh in 1991, the then policymakers did not know it would be the number one source of government revenue within a decade's time.
VAT now fetches more revenue than what is mobilised either through import duty or income tax. Naturally, the government's interest in VAT will be more than any other source of revenue.
The multilateral lender International Monetary Fund (IMF) that played an important role in the introduction of VAT in Bangladesh has found that it has the potential to mobilise far greater volume of revenue for the cash-strapped government.
Thus, it suggested to the government to make a new VAT law in order to help plug leakages and evasion to the maximum possible extent and introduce a uniform VAT rate. The IMF tagged the introduction of the new law with its future financial support to the country.
The government, accordingly, prepared a new VAT and Supplementary Duty Act and arranged consultations with stakeholders prior to its adoption by parliament.
But the time has changed. The government had passed the 1991 VAT law in the face of very insignificant resistance from the private sector which was at the fledgling state at that time.
The country's private sector is now better organised and the number of lawmakers in parliament from business community has been rising unabatedly. More than 60 per cent lawmakers of the present parliament are reportedly businessmen.
So, when the government had passed the new VAT law in 2012, it faced strong resistance from businesses. They strongly opposed the uniform VAT rate and elimination of package VAT.
There were a series of meetings between the National Board of Revenue (NBR) and the trade bodies on the issue but disagreement over many issues persisted. Despite pressure from the IMF to enforce the law, the government decided to introduce it from the first day of the financial year (FY) 2016-17. But, at the very last moment, the government had to defer the introduction of the law for another two years until the FY 2019-20.
The government, it seems, is determined to enforce the new VAT law from the next FY despite the fact that many issues and disputes over a number of its provisions are yet to be addressed or resolved.
It is, however, certain that there will be multiple VAT rates, instead of a uniform rate as was proposed in the original law.
The NBR is expected to bring a number of amendments to the law before its enforcement. But certain issues, including varying rates to be imposed on different items, are yet to be resolved. The Board is yet to supply cash register machines to business establishments and identify the types of software the latter would use in VAT-related transactions. Businesses have also alleged that the NBR has failed to carry out its promised study on the possible impact of the new VAT on the price situation and the economy.
Understandably, the government and businesses could not resolve many disputes over the new VAT law over a period of seven years. That appears rather strange. Yet the delay over enforcement of the law rather distinctively displays the strength of businesses.
However, the reality is that it is none but the consumers would ultimately pay whatever amount of VAT the government levies on goods and services. Businesses do usually pass the entire burden of duty and taxes barring the tax on profit onto the consumers.
The government will be able to get the maximum out of the new law if it could plug the VAT leakages and evasion of all types. It should do whatever necessary in that direction.
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