Reform panel recommends reinstatement of Advance Trade VAT

A reform panel recommends reinstating the once-discarded Advance Trade VAT (ATV) that taxes products at both ends -- production and import -- and refuses refund.

Sources say if this system is re-imposed through the upcoming budget, in an avowed bid to redouble this tax receipt, it would replace the current Advance Tax (AT).

In a bid to plug leaks of trade VAT, the committee has proposed imposing ATV at a rate of 3.0 per cent both at import and production stages of manufactures, says a draft report on the reforms to be executed through the new budget, scheduled to be placed on June 9.

Bangladesh has around 5.4 million sales points while some 110,000 or 2.03 per cent are currently registered as traders under value-added tax (VAT), the report mentions.

The five-member committee comprising senior VAT and customs officials, in the report, recommends for the National Board of Revenue (NBR) to slap the tax for next one or two years until installation of Electronic Fiscal Device (EFD) in at least 1.0 million businesses.

The government scrapped the provision of ATV in the new VAT and Supplementary Duty Act 2012 and introduced AT with refund provisions in 2019.

The high-powered VAT committee is assigned to the task of preparing a perspective plan for enhancing the country's paltry VAT-GDP ratio.

Headed by Director-General (DG) of the Customs Intelligence and Investigation Directorate Dr Abdur Rouf, the committee made a 10-point recommendation to be incorporated into the upcoming 2022-23 fiscal budget.

The dos have been drafted following instructions from NBR chairman Abu Hena Md Rahmatul Muneem.

The final report of the committee is set to be placed on April 24 before the NBR chief.

"Imposition of ATV both at import and production stages of manufacturers for the next financial year could fetch Tk 194.10 billion in revenue," says the committee in the report.

In the FY 2020-21, the National Board of Revenue collected Tk 39.20 billion in VAT at business stages from traders as most of them stayed out of its purview, according to the report.

Rizwan Rahman, president of Dhaka Chamber of Commerce and Industry (DCCI), however, opposes ATV imposition in apprehension of escalation of the cost of doing business that, in turn, would cast cascading effect of inflation on cost-of-living standards.

"Such unfriendly imposition of taxes would leave adverse impact on post-pandemic recovery of business," he says.

He suggests that the revenue authority should collect VAT after sales have been made and widen VAT net instead of implementing the recommendations.

"There is no guarantee that imported goods will be sold so the idea of ATV is unjustified. Since ATV is not treated as the final VAT for trading imports, it should not be enforced," he adds.

Mr Rahman notes that the decisions on tax and VAT in budget make MSMEs unsustainable and squeeze new investment to some extent.

He rather stands for tax automation, including all legitimate refund and credit mechanisms.

"The NBR has failed to achieve desired success on EFD project and most of our micro-and small businessmen are not capable of or trained yet to operate this device," the chamber leader said.

In the draft report, the VAT committee's other recommendations include taxing services provided by employees to the employers, not asking any question on previous VAT-payment issues to the newly VAT-registered businesses for 30 to 90 days and exempting day-labourers' services from payment of VAT.

So far, the NBR could install only 4,000 EFD across the country in a sluggish progress.

The committee recommends scrapping the provision of Advance VAT as it found this fiscal measure as 'conceptually flawed'.

Dr Abdur Rouf, the head of the committee, said imposing ATV in place of AT could resolve the complexities over VAT-refund issues.

"The ATV for traders is not refundable unless they pay VAT at a standard rate of 15 per cent at the final stage," he added.

The government needs to take some bold steps to plug holes of VAT leakage and increase country's tax-GDP ratio, he said in support of reinstating the previously forsaken mode of taxing.

In the second perspective plan (2021-2041), the government has targeted to raise the tax-GDP ratio to 17 per cent by 2031 and 41 per cent by 2041.

Currently, country's tax-to-GDP ratio is only 7.9 per cent.

The committee proposes recasting the central registration system to issue VAT registration under one Taxpayer Identification Number (TIN) and Business Identification Number (BIN) policy.

It also proposes introducing an integrated account system, allowing storage of raw materials or products in the places not registered with the VAT department, building capacitates and skills of nearly 10,000 VAT professionals and amending VAT- adjustment-related rules.

In the draft report, the committee outlined a work plan to raise VAT receipts and ensure compliances.

The work plan includes digitising VAT invoice, installing NBR- approved software to 50,000 companies in next two years, installing e-VDS, distributing free-of-cost VAT software, rewriting VAT law and rules, developing infrastructure and massive education and training programmes.

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