Fiscal measures in FY18 budget - a review

The Jatiya Sangsad (JS) passed the budget for the new fiscal year 2017-18 was passed on June 28. Many discussions, press conferences, dialogues and meetings were held throughout the 27 days from the presentation to passage of the budget in the JS. There were heated debates in the House and parliament members went to the extent of demanding resignation of the Finance Minister for presenting the budget. Eventually at the intervention of the Prime Minister, implementation of the VAT & SD Act 2012 was deferred for two years. The main concern of the private sector was single rate of VAT, fear of having a huge price hike and the sector becoming uncompetitive.

Now we do not know what will happen after two years. This year, the National Board of Revenue (NBR) undertook a series of activities to popularise the new VAT Act, and a number of changes were made in the budget. The number of VAT exemptions has been increased to 1,043 HS instead of 536 items under the first schedule of 1991 Act. There was a long debate on the exempted items and some of these were prohibited ones. Examples were meat of pigs, fat of pigs, live horse, donkey, khochchor, ghotok, birds' egg, etc. In the new SRO (statutory regulatory order) issued on July 01, 2017, some of these items were dropped.

At the import stage, 143 products are tax-exempted, including 78 items in the 2016-17 budget which have been dropped. In the new list under the head of import and production stage, some important items such as raw hides, cotton and raw jute have been dropped. VAT exemption list has been classified as import stage, import and production stage, production and trade stage which were absent in the previous year's budget.

In the service sector, there are changes. Even though VAT at 15 per cent is not in place, inclusion of fruits and vegetables packaging, agricultural seed storage and preservation has been dropped. This may put the agricultural sector under stress. Transport is not included in the exemption list, so are information service (on line product sale), education-related research. Forty-four services areas have been omitted and the number of services exempted from VAT is now 25. Financial, social welfare and life-saving fundamental services have also not been included.

There was a long debate on Supplementary Duty (SD). The number of items was reduced to 1,31 while 256 items were initially included in the new Act. In the revised Finance Act 2017, it is found that most of the SD rates were kept unchanged at the level of 2016-17, except for some items like candles on which there was SD at the rate of 15 per cent. In the 2017-18 budget and in the new Finance Act (FA), it also remained unchanged, meaning that SME producers may face competition in this sector. In the case of readymade garments (RMG), there was 45 per cent SD in the year 2016-17 which has been increased to 50 per cent in the current budget and in the FA 2017 it returned to the earlier situation. The exception is that SD has been reduced to 20 per cent from 45 per cent for the HS 62.11-6,211.49 (track suit and other garments).

The tax collection amount remains the same from the source of VAT and the target is Tk 912.54 billion. Amount from income tax and profit is Tk 851.76 billion, from import it is Tk 300.23 billion, while amount of tax to be collected from SD is Tk 384.01 billion. Collection of tax from export is minimum which is Tk 440 million only, from excise duty Tk 15.99 billion and from other tax sources the amount is Tk 16.90 billion. It is still not clear what would be the sources of additional tax collections to meet the target of Tk 2,481.90 billion. It is observed that the number of tax-deducted-at-source (TDS) cases has increased. These are credit rating services, motor garage workshop, private container port or dockyard services, shipping agency commission, stevedoring/berth operation, transport services, carrying services etc. These TDS will confirm tax collection to the exchequer which will be refunded later.

The private sector has hailed the postponement of implementation of VAT and SD Act 2017 for two years, and also the policy reform in respect of non-enhancement of excise duty on bank deposit. But excise duty for deposit above Tk.1.0 million has been almost doubled.

Customs tax was one of the less discussed issues this year, but in most cases, tax slabs and changes made thereof have become the main focus for heated debate. In case of customs tax, introduction of Authorised Economic Operator (AEO) is a new inclusion by which large entrepreneurs can be benefited to some extent if an AEO is appointed, but sufferings of small-scale entrepreneurs will remain as they will not be able to fulfil the conditions for AEO and get better services.

There were some suggestions from the private sector to enhance the exemption limit of surcharge which has not been accepted. Corporate tax rate was another debated issue that has been kept as it was.

As for GST (goods & services tax), Bangladesh could carefully follow the developments  in India. There GST rates have been fixed at 5.0 per cent, 12 per cent, 18 per cent and 28 per cent from July 01. Some basic commodities have been kept out of the tax net.

The National Board of Revenue may think of some price enhancement of tariff-based products. Besides, the Board is trying to bring discipline in collecting tax using automated system and cutting down cases of tax fraudulences. It seems it will increase its field-level visibility and will try to make people accountable and enforce penalty so that the enhanced VAT amount is collected.

The writer is CEO, Business Initiative Leading Development (BUILD), a partnership organization of DCCI, MCCI and CCI.
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