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Government plans to enact VAT law with two different rates

  • Published at 12:22 am May 25th, 2018
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A formal announcement in this regard might come from Finance Minister AMA Muhith during the budget declaration on June 7

Although the applicable rate of Value-added Tax (VAT) is 15% under the Value-added Tax and Supplementary Duty Act-2012, the government is planning to introduce two different VAT rates next year, sources from the Finance Ministry told the Dhaka Tribune.

The law is set to be implemented by July 2019. The government was forced to defer the implementation of this VAT law last year, following strong opposition from the country’s business community during the budget for fiscal year 2017-18.

Sources from the Finance Ministry however stated that the government has planned to introduce the two-stage VAT rates from the next fiscal year 2018-19, as a part of the law’s implementation.

A formal announcement in this regard might come from Finance Minister AMA Muhith during the budget declaration on June 7, they said.

The Finance Ministry, in its budget instructions sent to the National Board of Revenue (NBR), had mentioned four changes in the next fiscal year’s budget.

The changes involve issuing new rules to introduce an online system, adopting Electronic Fiscal Device (EFD), increasing the tariff value of existing goods and services, and introducing two rates of VAT.

Though there is a uniform VAT rate of 15% in the country, there are also several other truncated VAT rates ranging from 1.5% to 10% for various types of goods and services.

These truncated VAT rates are fixed by the NBR, considering the impact of VAT on prices of goods, cost of living, strengths of sectors, and protection of local industries.

Recently, the finance minister sent a note to the National Board of Revenue (NBR) Chairman Md Mosharraf Hossain Bhuiyan, asking for a list containing VAT rates for different products and revenue collected from the items.

The note, sent on April 29, read: “Currently, VAT is applicable at rates of 4%, 5%, 7.5%, 10%, and 15%. These rates can be merged into two rates.”

Besides, the finance minister and NBR chairman on several occasions announced that the government backtracked from introducing a single VAT rate and was considering the introduction of more than one rate.

On May 11 and 12, in pre-budget meetings with senior NBR officials, the finance minister also hinted at implementing two VAT rates.

AMA Muhith, in a meeting with BCS (Customs and VAT) Association and BCS (Taxation) Association on March 11, said: “From the next fiscal year, VAT rate will be of two types. One will be of 15% and the other will be below 15%. 

“That means the VAT rate will be not no longer be one, but two.”

On April 5, the NBR chairman, addressing a pre-budget meeting with the representatives of local and foreign investors, said: “I am personally not in favor of a uniform rate of VAT. Different rates should be introduced.”

A number of NBR officials told the correspondent that there would certainly be more than one VAT rate, preferably two, from July 2019, if the new VAT law is implemented.

The VAT wing of the NBR has already sent the list and other documents sought by the finance minister, they said.

Meanwhile, Finance Ministry sources confirmed that the final decision about VAT will be taken by Prime Minister Sheikh Hasina.