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Dhaka Tribune

Seven VAT slabs regime to go, 15% rate for imported, luxury items

The new rates will be 15%, 10%, 7.5%, 5% and 2% while the current rates are 2%, 3%, 4.5%, 5%, 7%, 10% and 15%

Update : 09 Jun 2019, 10:00 PM

The current seven rates of value added tax (VAT) will no longer exist from the next fiscal year, as the government is likely to introduce five slabs of VAT, with the new VAT law taking effect in the upcoming budget.

The new rates will be 15%, 10%, 7.5%, 5% and 2% while the current rates are 2%, 3%, 4.5%, 5%, 7%, 10% and 15%. The highest 15% is likely to be applicable to imported and luxury items. 

The implementation of the ‘Value Added Tax and Supplementary Duty Act 2012’ was interrupted several times earlier.

For the last time in 2017, the government was forced to suspend the act for two years amid protests from business community who demanded multiple VAT rates, instead of single rate mentioned in the act.

NBR officials, seeking anonymity, said that the multiple rates were going to be introduced to minimize pressure on small and medium businesses.

NRB Chairman Md Mosharraf Hossain in several pre-budget talks have said that they will keep mainly 15% VAT for majority products but to protect small businesses and keep the consumers relaxed, three to four more slabs will be introduced.

“We must introduce the law initially in upcoming fiscal. We will not go hard. If it demands any change, it will be done in phases,” said Mosharraf in a talk.

He claimed that the business community came to a settlement with the government over the new VAT law issue and to ensure implementation of the law, the NBR, finance minister, and business bodies met several times.

NBR officials have said that 15% VAT will be applicable to imported and luxury products, while 10% VAT to the local products, 7.5% to wholesales and 5% to retail sales.

The tariff value and truncated value-based rates will be no longer in place  in the next fiscal year that may result in price hike in  a number of goods and services.

It has been learnt that the upcoming budget is likely to introduce two percent VAT on these products and services.

The VAT-free annual turnover limit is set to be raised to Tk50 lakh from existing Tk36 lakh. The ceiling of turnover tax is expected to be increased to Tk3 crore from Tk80 lakh.

The rate of turnover tax would be increased to four percent from three percent.

Mosharraf informed that tax rebate (returning tax money, if needed) would be applicable only for those who would pay VAT at 15% rate.

Those paying at lower rates would not enjoy the facilities, he clarified.

Former NBR Chairman Muhammad Abdul Mazid told Dhaka Tribune that both the multiple rates and the single rate had their advantages and disadvantages.

“But there some scope for misusing the multiple rate facilities. For instance, traders, who are supposed to pay 10%, can evade VAT by paying only 7%,” he said, adding that uniform 15% rate, in contrast, could ensure proper VAT.

If the government kept multiple rates again, it would be a challenge for NBR in administrating and collecting VAT properly, he pointed out.

Besides, absence of rebate facilities might cause repetition of tax, which would ultimate hit consumers, he mentioned.

Automation of the NBR and tax collecting system was the solution, suggested Mazid, adding that the NBR must go for it as early as possible.

Besides, he proposed formation of a committee comprising stakeholders including FBCCI representatives for addressing challenges over implementation of the new VAT law.

“The committee will sit every month and solve problems,” he said.

Mazid, however, believes that the new VAT rates will not affect the consumers much.

The Federation of Bangladesh Chambers of Commerce and Industries (FBCCI) President Sheikh Fazle Fahim said they demanded multiple rates as the 90% of the country’s businesses were micro, small and medium enterprises (MSMEs). 

It would help the small businesses by minimizing pressure of taxes, he added. 

“But we need rebates facilities for all,” Fahim stated.

He, however, said that finance minister and NBR chairman assured them that implementation of the new VAT law would not increase costs for consumers.

Besides, it would not negatively impact ease of doing business, he said, citing the finance minister.

In materializing the law, finance minister and FBCCI together should address the challenges, he suggested.

FBCCI requested its associated bodies to form a working group to assist it by giving fact-based feedbacks if the multiple rates and tariff elimination affected them.

“Considering the feedbacks, we will talk to the ministry concerned to mitigate any unintended challenge,” Fahim said.

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