The roundtable discussion was held on 10 December 2014 presented an issue paper that identified salient concerns on the new act for discussion.
View more news reports on the event
Published in The Financial Express
Minister at CPD dialogue
VAT on consumer goods should go
FE report
Essential commodities consumed by people of low-income group should be exempt from payment of the value-added tax, says State Minister for Finance MA Mannan.
He also suggested exploring the possibility of reducing the rate of VAT from 15 per cent in the upcoming VAT and SD law.
The state minister made the suggestions at a roundtable organized by the Center for Policy Dialogue (CPD) at a city hotel Wednesday to discuss the new VAT and Supplementary Duty (SD) Act, scheduled to take effect from 2015.
“It is important to cut rate of VAT as it can leave adverse impact on inflation and consumption of goods,” he said.
He also underscored the need for transparency, awareness building, dialogue with businesses and phasing into a new system.
Dr Mannan expressed his reservation over the new provisions on freezing bank accounts in the new law.
“It should be reconsidered. No bank account should be frozen without court instructions,” he said.
Dr Ahsan H Mansur, Executive Director of the Policy Research Institute (PRI), said the government needs to replace the existing law as it has gone through several changes on political considerations and for other reasons.
VAT collection lost its buoyancy after 1992 that was regained again 2011-2012, he noted.
“Reform and upgradation of any law is important to reap the expected result and achieve revenue-collection target,” he told the meet.
He said the government held extensive discussions with all the stakeholders on the new VAT law.
Dr Mansur viewed that the return-submission scenario is extremely poor due to existing faulty current-account system.
Only 35,000 businesses submit VAT return out of 700,000 registered ones, he said.
There must be options to crosscheck, audit that is quite difficult in the existing law having package system of VAT that contributes only Tk 100 million annually, he said.
He also pointed that the country’s tax-GDP ratio is only 10.5 per cent that doesn’t show any improvement.
Former Finance Adviser Dr AB Mirza Aziz, World Bank (WB) Bangladesh Chief Economist Dr Zahid Hussain, Chittagong Stock Exchange (CSE) chairman and former NBR chairman Dr Muhammad Abdul Mazid, VAT member Barrister Jahangir Hossain, Federation of Bangladesh Chambers of Commerce and Industry President Kazi Akram, trade experts and FBCCI representative MI Siddique, Ali Jaman, Build Bangladesh Chief Executive Officer Ferdous Ara Begum, representatives from SUPRO, and Equity BD also spoke at the programme.
CPD Research Fellow Towfiqul Islam Khan presented a detailed paper on VAT and SD act, its concerns and implementation challenges at the programme.
CPD Executive Director Professor Mustafizur Rahman moderated the programme while Research Director Dr Fahmida Khatun, distinguished fellow Debapriya Battacharya also attended and spoke on the programme.
Kazi Akram said the trade leaders’ opinions coming through different discussions should be incorporated into the new VAT law.
SME association president Ali Zaman and Build CEO Ferdous Ara Begum said the new law should be prepared with favorable provisions for small and medium businesses to help those sustain.
They said small businesses cannot import products or keep the documents to claim tax rebate.
Mr Zaman said there is sale and excise law prevailing in the law that the government had committed to withdrawing.
He said small business-profit level is between .25 and 1.0 per cent so how they could afford 4.0 per cent VAT.
NBR member Mr Jahangir said the new law incorporated modern system by ensuring recorded transactions, exempting small businesses and keeping provisions of input credits for raw materials.
Although the new law has 15 per cent rate, but actual rate would not exceed 3.0 per cent, he said.
The WB lead economist said the country needs to increase its tax-GDP ratio to sustain its recurrent expenditure.
“Tax expenditure has been found 2.5 per cent of the country’s GDP. Of the ratio, the highest leakage has been found in VAT system,” he said.
He said VAT is a consumption tax so consumers should speak up on this.
Dr Zahid said 15 per cent VAT rate is not too high compared to that of the other countries.
However, Dr Mirza Aziz and FBCCI leaders suggested a tolerable rate as most of the countries have VAT rates below 15 per cent.
Dr Mirza Aziz suggested focusing equity implications, incentives to investors, administrative simplicity and inflation aspect at the time of shifting forward.
“VAT is an inequitable system as the poor are paying same like well-off sections. In most of the countries vat rate is below 15 per cent,” he said.
Dr Abdul Mazid said the new law should be implementable.
He underscored the need for coordination among the NBR wings and termed unified TIN as an important tool to ensure coordination with VAT and income-tax wing.
MI Siddique suggested ensuring Vat justice and cut of discretionary power of Vat officials to remove fear factor.
He also suggested incorporating specific rules to determine the turnover of small and medium businesses.
The Supro representative underscored the need for ensuring representation of consumers in dialogues.
Towfiqul said the CPD conducted a research that was also carried by other five South Asian countries.
The study found many of the SMEs avoiding payment of VAT as they consider it as troublesome, complex and needing huge documentations.
It found four points of concern of businesses on new law: a single rate of VAT, abolishing package VAT, keeping many documents, and additional power of VAT officials.
In the existing law, framed in 1991, the businesses also sought withdrawal of Advance Trade VAT and advance payment of VAT.
The CDP fellow said the ongoing taxation-reform agenda focused on revenue collection and ensuring availability of finance for development.
He suggested similar importance on other economic issues, including employment, investment, economic equity and justice.
Published in New Age
Amend new VAT law to reduce rate, economists advise govt
Staff Correspondent
Economists on Wednesday suggested that the government should cut the value-added tax rate from the 15 per cent flat rate proposed in the new law to reduce the tax burden on consumers.
At a roundtable discussion on the concerns and implementation challenges of new VAT and Supplementary Duty Act-2012, they said that a reduced VAT rate would decrease adverse effect of financial inequality and inflation on mass people.
Essential products consumed by low-income group of people of the society should be exempted from payment of VAT, they said.
Centre for Policy Dialogue organised the discussion at a hotel in Dhaka.
Former adviser to the interim administration Mirza Azizul Islam said that this was an appropriate
time to reduce VAT rate in the country as the government was reviewing the law.
A reduced rate increases compliance rate of the law, enhance productivity in businesses as well as ensure economic and social equity through reducing inflation, he said.
‘The final burden of VAT always falls on mass people which is inequitable for poor people as it increases the proportion of their consumption than their income because of payment of VAT,’ he said.
State minister for finance MA Mannan said that essential products including vegetable oil should be exempted from VAT.
He also said that the rate of VAT needed to be reduced from the 15 per cent proposed in the new law which would be implemented from 2016.
‘It is important to cut rate of VAT as higher rate affects inflation and consumption of goods,’ he said.
There are multiple VAT rates including truncated and package VAT system in the current law.
Mannan also opined against a provision of the new law which empowers the VAT administration to freeze bank accounts of the businesses to collect unpaid taxes.
‘The provision should be reviewed and no bank account should be frozen without instruction of court,’ he said.
Federation of Bangladesh Chambers of Commerce and Industry president Kazi Akram Uddin Ahmed demanded that the new law should be amended with inclusion of truncated and package VAT systems so that businesses could accept it.
The National Board of Revenue should also give importance on the opinion of business community regarding any changes in the taxation system.
Policy Research Initiative executive director Ahsan H Mansur said that businesses would have to pay VAT for ensuring economic development of the country, otherwise the country would have to leave all welfare initiatives and development activities.
NBR member (VAT policy) Jahangir Hossain said that the law was formulated to simplify and modernise the VAT procedure to remove hassles businesses face faced.
CPD executive director Mustafizur Rahman presided over the discussion while its research fellow Towfiqul Islam Khan presented the key note paper on the law.
Former NBR chairman Abdul Mazid, SME Owners Association president Ali Zaman, World Bank lead economist in Bangladesh office Zahid Hossain spoke, among others, at the discussion.
Published in The Daily Star
Call for cuts in VAT rates
Star Business Report
The government should cut the rate of value-added tax from the present 15 percent and keep essential commodities out of the purview VAT to reduce burden on consumers, especially low-income people.
Former adviser to the caretaker government AB Mirza Azizul Islam made the call at a discussion organised by the Centre for Policy Dialogue on concerns and implementation challenges of VAT and Supplementary Duty Act 2012.
State Minister for Finance and Planning MA Mannan also supported the view at the programme at Six Seasons Hotel in the capital.
“VAT as an indirect tax is shifted forward to consumers. The impact of such taxes on low-income people is higher,” Islam said, adding that VAT rates in most Asian countries are low.
A low rate of VAT improves compliance and reduces adverse impact on equity and inflation, he said.
Mannan said the VAT rates can be reconsidered to rein in inflation and encourage consumption. No VAT should be imposed on commodities consumed by low-income people, he said.
The law, which was passed in 2012, brings all sectors under the purview of VAT. The law has increased documentation requirements for firms and given additional power to revenue officials to recover arrears.
Businesses at the discussion said the authorities had consulted them but their concerns were not reflected in the law.
Jahangir Hossain, member (VAT policy) of the National Board Revenue, said the aim of the law is to make the VAT system modern and business-friendly and remove distortion that was present in the first VAT law. Towfiqul Islam Khan, a research fellow of the CPD, said taxation should be based on broader development objectives.
He said taxation has four roles, including being a source of government revenue. It provides finance for public services and investment, and is used as a strategic tool for the government to promote certain sectors to support investment, economic growth and employment. Taxation is also an instrument to ensure social and economic equity and justice, he said.
“But it seems that the ongoing taxation reform agenda in Bangladesh is more biased towards the first two roles. The policymakers will need to consider the latter two roles with similar importance.”
Ahsan H Mansur, executive director of Policy Research Institute, said compliance with the VAT law is very poor. Only 35,000 out of seven lakh registered entities submit VAT returns, he said.
Mansur, who was involved in drafting of the new law, said the government should implement the law if it really wants to offer a modern taxation system and create an even-playing field. Large development projects cannot be financed without a rise in tax collection, he said.
Kazi Akram Uddin Ahmed, president of the Federation of Bangladesh Chambers of Commerce and Industry, said businesses were consulted before finalising the law.
He also called for a tax collection system free from harassment.
CPD Executive Director Mustafizur Rahman said VAT has an impact on competitiveness of businesses, and social justice and employment.
Zahid Hussain, lead economist of World Bank in Bangladesh, said the taxation system should be both business and economy friendly.
Aminur Rahman, a former NBR member, said the culture of maintaining accounts and records is poor in Bangladesh.
Muhammad Abdul Mazid, a former NBR chairman, also spoke.
Published in Dhaka Tribune
Experts for simplification of VAT laws, cutting VAT rate
Tribune Business Desk
‘The government’s all documents should be transparent and simple to understand’
Speakers at a discussion here on Wednesday on the new law of Value Added Tax (VAT) and supplementary duty (SD) urged the government to simplify the laws and rules, and exempt three essential items – food, education and health – from the tax regime.
State Minister for Finance Abdul Mannan, who was present at the seminar organised by the Centre for Policy Dialogue (CPD) at a city hotel, supported the idea of keeping the low income consumer groups’ essential food items from the tax regime.
“The government’s all documents should be transparent and simple to understand,” he told the seminar, reports UNB.
CPD distinguished fellow Dr Debapriya Bhattacharya spoke at the function moderated by its executive director Dr Mustafizur Rahman.
CPD fellow Towfiqul Islam Khan and Zafar Sadique made a presentation on the VAT and Supplementary Duty Act 2012 at the seminar.
Former caretaker government adviser Dr Mirza Azizul Islam suggested reducing the VAT rate from the existing 15% to below 10%. “In most countries, VAT rate is below 10%,” he said, adding that the tax net should be more widened.
“This is the right time to reduce the VAT rate,” he said, criticising the existing law allowing the authorities to freeze the bank accounts for any excuse.
FBCCI president Kazi Akram Uddin alleged that in most cases the suggestions placed by the business community over the tax and duty are not found reflected when the respective policy is formulated.
He, however, said the present government is very business-friendly and they take decision in consultation with the government.
Former NBR chairman Kazi Abdul Majid said the VAT and income tax law should be seen from a holistic point of view and every law should be prepared with a view to making it implementable.
Economist Ahsan Monsur said that there is a huge gap between the GDP and tax ratio which must be reduced through increasing the income from VAT and taxes.
He also suggested increasing the number of income taxpayers, saying this unacceptable that only 1.5 million people pay the income tax.
Ali Zaman, a leader of SME Association, said owners of small enterprises are in real trouble as they have to pay huge taxes without getting any benefit as they buy their raw materials from local market without getting the chance to import it directly from abroad.
A representative of Supro, an NGO, said this is unfortunate that the government and businessmen discuss a matter and enact the law without thinking the interest of the mass people into account.
Published in Daily Sun
VAT law must be pro-business, consumer-friendly
Speakers say at a roundtable
Staff Correspondent
The new VAT law must be pro-business and consumer-friendly so that businesses can flourish further and at the same time revenue collection improves, analysts observed at a city roundtable on Wednesday.
Speakers said the new Value Added Tax and Supplementary Duty Act 2012 should be tailored to local context, more simplified and it should allow time for readiness for both taxpayers and the tax administration.
The views were exchanged at a roundtable on “VAT and SD Act 2012: Concern and Implementation Challenges,” organised by local think tank Centre for Policy Dialogue (CPD) at a city hotel.
The implementation of the new law, enacted in 2012 and expected to come into effect from July 1 2015, has become a challenging issue as some of its provisions raised hues and cries from the business community, forcing the government to form a committee to review it.
Formulation of a new law became important after the VAT Act, 1991 found to be obsolete and incapable of meeting the present needs of the government to raise the tax-GDP ratio. The new law was also apparently an outcome of IMF’s condition tagged with its Extended Credit Facility (ECF) loan that the government received to adjust balance of payments, according to some analysts.
While formulating any law, it should be taken into consideration that the law must be digestible to the people of a country. And the enacted law must be worthy of implementation, remarked MA Majid, a former chairman of National Board of Revenue (NBR).
He also claimed that IMF prescribed him to reform the old VAT law, which he refused, saying the country was not still prepared for a new law. Dr Zahid Hussain, lead economist at World Bank Dhaka office, said local tax-GDP ratio is very low and it must be raised to feed in ‘recurrent public expenditure.’ However, he said taxes must be equity-friendly.
Estimates suggest that the loss of tax exemptions or tax expenditure in the country is 2.5 percent of gross economic output, he also informed.
Referring to global VAT ranges between 4 and 27 percent and a most common rate of 15 to 20 percent, he supported the 15 percent single rate for VAT, but he warned of the negative impacts it could have on consumers. “We admit that the government needs money to implement big budgets, and we’re also ready to give taxes. But the law was formulated in such a way that businessmen can easily give taxes and they are not harassed,” said Kazi Akram Uddin, FBCCI president.
A business leader of SME sector Ali Zaman supported the proposed 15 percent uniform rate for VAT, but said the proposed withdrawal of truncated value base and tariff value and package VAT system would hurt small business in the service sector. Businessmen also strongly opposed the provision of giving tax administration the businessmen’s bank account freezing authority.
Taking part in the discussion, Dr AB Mirza Azizul Islam, a former adviser to a caretaker government, said the main objective of the tax managements, now being prescribed by some donors especially the IMF, is to enhance resource mobilisation. “But we’ve to see also what role the reformed tax system can play to address income inequality, he pointed out.
Referring to his own study findings, he said in Asian countries it was found that VAT collections rise when it was first introduced, but falls over the time, as the indirect tax system is ‘not equitable’ in a sense that poor people pay more taxes compared to their incomes.
Economist Dr Ahsan H Mansur stressed on revising laws to make them timely. State Minister of Finance and Planning MA Mannan said the VAT rate can be reduced, considering the present state of local economy. He also favoured automation of tax systems to lower grafts. Towfiqul Islam Khan, a research fellow of CPD presented keynote. Prof Mustafizur Rahman, CPD’s executive director chaired the roundtable.
Published by UNB
Simplify VAT, supplementary duty law: Seminar
Dhaka, Dec 10 (UNB) – Speakers at a discussion here on Wednesday on the new law of Value Added Tax (VAT) and supplementary duty (SD) urged the government to simplify the law and rules and exempt three essential items –food, education and health — from the tax regime.
State Minister for Finance Abdul Mannan, who was present at the seminar organised by the Centre for Policy Dialogue (CPD) at a city hotel, supported the idea of keeping the low income consumer group’s essential food items from the tax regime.
“The government’s all documents should be transparent and simple to understand,” he told the seminar.
CPD distinguished fellow Dr Debapriya Bhattacharya spoke at the function moderated by its executive director Dr Mustafizur Rahman.
CPD fellow Towfiqul Islam Khan and Zafar Sadique made a presentation on the VAT and Supplementary Duty Act 2012 at the seminar.
Former caretaker government adviser Dr Mirza Azizul Islam suggested reducing the VAT rate from the existing 15 percent to below 10 percent. “In most countries, VAT rate is below 10 percent,” he said adding that the tax net should be more widened.
“This is the right time to reduce the VAT rate,” he said criticising the exiting law allowing the authorities to freeze the bank account for any excuse.
FBCCI president Kazi Akram Uddin alleged that in most cases the suggestions placed by the business community over the tax and duty are not found reflected when the respective policy is formulated.
He, however, said the present government is very business-friendly and they take decision in consultation with the government.
Former NBR chairman Kazi Abdul Majid said the VAT and income tax law should be seen from a holistic point of view and every law should be prepared with a view to making it implementable.
Economist Ahsan Monsur said that there is a huge gap between the GDP and tax ratio which must be reduced through increasing the income from VAT and taxes.
He also suggested increasing the number of income taxpayers saying this unacceptable that only 1.5 million people pay the income tax.
Ali Zaman, a leader of SME Association, said owners of small enterprises are in real trouble as they have to pay huge taxes without getting any benefit as they buy their raw materials from local market without getting the chance to import it directly from abroad.
A representative of Supro, an NGO, said this is unfortunate that the government and businessmen discuss a matter and enact the law without thinking the interest of the mass people into account.