Implementation of new VAT law at a flat rate of 15% would increase the living cost as it will hike the prices of essentials due to multi-stage payment of tax from production level to retailing.
Amid a wide range of criticism and opposition from business people, the Value Added Tax (VAT) Act 2012 will be effective from July 1 at a flat rate of 15% for almost all products.
The manufacturers of products will enjoy rebate by showing previous vouchers or records.
In line with the new law, all business transactions will be under the VAT net except education, lifesaving drugs and essential commodities, but the NBR is yet to clarify those exceptions.
“Prices of finished goods have soared immediately, affecting the living expenses of consumers as they have to pay 15% VAT,” Former finance adviser to caretaker government AB Mirza Azizul Islam told the Dhaka Tribune.
Though manufacturers would get rebate on purchase of raw materials, it would hardly benefit consumers, he said.
“I think VAT rate should be 10% in Bangladesh as most countries in the region have below 15%.”
Azizul suggested considering the rate based on per-capita income.
The standard VAT rate is 8% in Iran, 12.5% in India based on states, 13% in Nepal and 12% in Sri Lanka, 6% in Malaysia, 7% in Singapore, 10% in Indonesia, 5% in Nigeria and 12% in the Philippines.
Centre for Policy Dialogue (CPD) Research Fellow Towfiqul Islam Khan told the Dhaka Tribune that “If 15% flat VAT rate is imposed, prices of almost all products will go up, which is simply a burden on consumers.”
Prices of products like electricity and bread will also shoot up, he said, adding that till now the discussion is focused on the sufferings of producers, but consumers are the ultimate sufferers.
“A product is supposed to go through three tires – production, distribution and retailers – to reach a consumer, thus amounting to the payment of 45% VAT. As a result, product price will be high at consumer level,” said Manzur Ahmed, former adviser to the Federation of Bangladesh Chamber of Commerce and Industry (FBCCI).
It would be a great burden on commoners as the law has been enacted without assessing its impact, he argued.
Talking to several experts and common people, it was learned that the living expense of general people will increase while it would also push the inflation up by at least 1.5%.
But NBR Chairman Md Nojibur Rahman ran counter to possible price hike and upswing in inflation.
He said there is hardly any chance of inflation and price hike.
As per the new law, business people will get rebate on VAT. Since it would reduce production cost, they will not hike the price of products, he argued.
Trade analysts, However, suggested cutting the VAT rate and proper implementation of the VAT law to reduce the burden of common people, especially those lower-income individuals living below the poverty line.
The National Board of Revenue (NBR) has to ensure that it collects VAT in a proper way and deposit that to the government exchequer, they said, adding that the government can gradually reduce the rate to 12% within the next two years.
They also called for implementation of National Social Security Strategy to ensure social security.
“I do not know what VAT is, but will it increase my daily living expenses?” Mohammad Aminul Islam, a rickshaw puller, made a query to these correspondents, when asked.
Citizens pay taxes to the government, but how much do the common people get in return? he asked.
“As a citizen of the country, my earnest request to Prime Minister Sheikh Hasina is keep the products out of VAT coverage for lower-income people.”
“The new VAT law is aimed at increasing the burden on lower-income people as VAT is also going to be imposed on some products like bread, electricity, diesel and kerosene – all of which are necessary to carry on life and livelihood,” Babosayee Oikya Forum President Abdus Salam told the Dhaka Tribune.
The business platform is working to reduce the VAT rate in order to protect the rights of Small and Medium Enterprises (SME) and consumers.
He urged the authority concerned to keep package VAT for SME and keep essential commodities out of VAT coverage.
The Consumers Association of Bangladesh (CAB) President Golam Rahman said: “Essential commodities must be exempted from VAT, or else inflation will go high and people will take to the street to protest against the new VAT law.”
So, it is high time that the government considered 100 times before implementing 15% flat VAT rate on almost all products, he suggested.
Implementation of new VAT law without the concern of consumers would exert extra pressure on the next fiscal year budget, Rahman said, adding that the government should revise the new VAT law.
The CAB president also urged the government not to impose VAT on the daily commodities for the sake of avoiding people’s suffering.