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Policymakers should focus on establishing a modern VAT system: Dr Moazzem

Published in The Daily Star on Monday, 9 October 2017 

Engage local firms to study impact of new VAT law

Businesses urge NBR

Star Business Report

Businesses and economists yesterday suggested that the revenue authority engage local research firms to carry out an independent study on the new VAT law’s impact on various trade and industrial sectors after it comes into effect.

“We want an independent study to know the impact. It should not favour the business community. It should not favour non-compliant firms,” Md Shafiul Islam Mohiuddin, president of the Federation of Bangladesh Chambers of Commerce and Industry, told a meeting at the Institution of Diploma Engineers, Bangladesh .

The National Board of Revenue organised the meeting to exchange views with businesses and researchers on its latest bid to conduct an impact analysis on the VAT and Supplementary Duty Act 2012.

The implementation of the much-talked law, which was scheduled to come into force from July this year, was deferred by two years to July 2019 in the face of opposition from businesses.

The concern was that various sectors, particularly small businesses, would be affected owing to application of a single and uniform VAT rate while doing away with multiple rates under the present VAT Act 1991.

Businesses had been demanding that the government conduct a study before enforcing the new law, framed at the prescription of the International Monetary Fund.

The NBR said the new law was formulated as the existing one suffered from various limitations and failed to capture all the economic activities, which should be brought under the revenue system to accelerate collections and reduce dependence on external financing.

Mohiuddin said the World Bank and the IMF were donors and their prescription should be viewed keeping in mind domestic realities.

He said many meetings took place in the past. “Let us not look back at the hiccups we had had. Let us go forward together,” he said.

“We have to take the socio-economic condition and reality into cognisance,” said Sheikh Fazle Fahim, first vice-president of the FBCCI.

He said Bangladeshi research firms should conduct the study as they know the country’s reality better than their foreign counterparts.

Khondaker Golam Moazzem, research director of the Centre for Policy Dialogue, said policymakers should focus on establishing a modern VAT system, not merely emphasising on a goal of increasing revenue collection.

Citing implementation of the Goods and Services Tax by India, he said small entrepreneurs have started facing problems with it. “It is a good experience for us,” he said.

Moazzem suggested for a sector-based study involving all stakeholders.

Jamaluddin Ahmed, general secretary of the Bangladesh Economic Association, recommended involving business chambers, professional business bodies and government agencies to reach consensus on the total number of taxpaying companies, firms and individuals.

Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said regulatory impact assessment was conducted in advanced economies before any implementation.

“This is not done in Bangladesh. Unless we hold discussions, the NBR will have to face resistance again ahead of the implementation of the law,” he said.

Mansur recommended keeping reduced VAT rates for the service sector, where the rate of value addition was less and the extent of non-compliance was high.

“There should be automation (for the VAT system under the existing law). It should not be implemented from the perspective of the 2012 law,” he said.

NBR Chairman Md Nojibur Rahman proposed a consortium of researchers from autonomous bodies such as the Bangladesh Institute of Development Studies, the University of Dhaka and private research organisations and business chambers.

The NBR can form a review group and place the findings to the top policymakers, he said.

 

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