Former Bangladesh Bank governor Farashuddin suggests solution to end VAT stalemate

Former Bangladesh Bank governor Mohammed Farashuddin has come up with a suggestion in a bid to end the finance minister-businessmen logjam on the new VAT (Value Added Tax) law.

The new VAT Act 2012 that comes into force from July 1 this year imposes a 15% VAT on businessmen.

Finance Minister AM Abdul Muhith had expressed his determination to extract 15% tax from businessmen in accordance with the new Act from July 1.

Prior to this arrangement, businessmen have been paying a lump sum as tax instead of a fixed VAT rate.

The terms of the new VAT Act could burden the small traders, believe businessmen.

The business community and the finance minister have been at loggerheads on this issue, with neither side ready to yield ground.

With the impasse between the two sides showing no signs of waning, the former governor on Monday stepped in with a proposal that could end the stalemate.

Speaking to bdnews24.com on Monday during an interview, Farashuddin said, “The new VAT Act imposes a 15% Vat from July 1. Many small and very small businessmen do not even maintain proper accounts. So for them, a VAT of 5% instead of 15% may be fixed for the first year.”

The government has been laying much stress on VAT as a means to collect taxes. VAT finds greater primacy in the current budget.

Of the Tk 2.95 trillion budget for the current fiscal, 36.5% is to be met from VAT.

About Tk 800 billion of the budget for the next fiscal is being aimed to be generated from VAT.

But the finance ministry and the business community conflict seems to have stalled the process even before it could start.

Although the finance minister has been maintaining an unyielding stance on the issue of collecting 15% VAT from July 1, he seems to have mellowed somewhat following the last meeting with the representatives of the business community.

The business community has even called for an amendment of the Act.

FBCCI president Abdul Matlub Ahmad has proposed that the current norm on VAT be continued till 2021.

He has proposed fixing a lump sum of Tk 18,000 for Dhaka and Chittagong City Corporation areas, Tk 15,000 for other city corporation areas, Tk 10,000 for municipality areas and Tk 5,000 for the other areas of the country.

However, Muhith said, “My personal preference is to experiment with the 15% for some time after which we can grade our products.”

The business community has said that the new VAT system could burden the ordinary people in a number of ways including a hiked electricity price, higher prices of textile products etc.

A report by National Board of Revenue (NBR) has also expressed concerns that consumer level prices could shoot up following implementation of the new VAT Act.

However the report adds that the prices of only 1% of all commodities would be affected by the new tax law.

The new VAT would lead to a 15-20% increase in interim VAT collection  while a 3% hike is expected on import VAT, the report states.