Finance Minister AMA Muhith announced that the new uniform 15% Value Added Tax (VAT) and Supplementary Duty (SD) Act 2012, will not be effective from July 1, 2017.
The minister said: “The proposed VAT law was first conceived in 2008, and after much discussion and deliberation, it was partially implemented in 2012. Going forward, we will continue to discuss how to improve it and make the necessary changes to fully implement it.”
The long-awaited announcement was part of his concluding speech on the 2017-2018 budget at the Jatiya Sangsad on Wednesday.
However, various Statutory Regulatory Orders will be issued by the government to continue the collection of revenue with the current VAT law.
The uniform 15% VAT on almost all products and services was panned nationwide after it was proposed on June 1.
Challenge in revenue mobilisationThe government deciding not to implement the law in the next fiscal year has raised questions about how it will face the budget deficit.
The VAT collection target will see a shortfall of Tk17,000 crore due to the government move, which delayed the imposition of a 15% flat VAT rate for all sectors.
Finance Division officials said the decision may force the government to borrow more from savings sertificates and banking sectors to meet the deficit.
The rising dependence on saving instruments of high interest rates will soarpush up the spendings of the government, while heavy borrowing from the banking sector may put a negative impact on private investment, they said.
“If the government relies more bank loans, a crowding out effect is likely to surface in the banking sector. Private sector loans may also dry up,” said a top Finance Division official requeting anonimity.
If there is a slowdown in private investment, it will hamper the country’s economic expansion plans, worsening the unemployment situation with heavy borrowing deepening inflation, he feared.
Despite such assumptions, the government on Wednesday deferred the VAT law, fearing that is may cause price hikes in the next fiscal year prior to the next national polls.
Officials said termed the decision the country’s internal political one, though as the IMF and World Bank wanted the law implemented.
It may also affect the mutual trust between Bangladesh and the global lenders as the law was one of their major conditions for financing, they added.
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Excise duty increased only for deposits over Tk1cr
The proposed excise duty rate for the fiscal year 2017-18 has been amended. The rate on deposits with more than Tk1cr is the only one to be increased.
The charge will be Tk12,000 instead of Tk7,500 for any balance between Tk1cr and Tk5cr.
Accounts that record over Tk5cr in balance will have to pay Tk25,000 as excise duty, instead of Tk15,000.
According to his proposed rate, the accounts that record up to Tk1 lakh in balance, debit or credit, will be exempt from duty. Currently, the exemption applies to balances up to Tk20,000.