All eyes on VAT as finance minister set to unveil budget

All eyes are on what Finance Minister AMA Muhith makes of the Value Added Tax (VAT) in the 2016-17 budget, which he presents in the House on Thursday.

The government wants to implement the new VAT law to boost revenue but traders have been protesting against that.

Muhith is set to unveil his plans for the coming fiscal, during which he seeks a 35 percent rise in revenue earnings.

The whole country is waiting to see how he manages the Tk 3.5 trillion budget outlay.

VAT has been at the centre of all discussions in the last few months ahead of the budget.

Will the new law imposing 15 percent VAT will be effectively dissolve the fixed rate ‘package VAT’ is what the Bangladesh business community is wondering.

Muhith, who spoke to the media about a lot of issues ahead of the budget, had been very careful to remain tight-lipped on the VAT issue.

“I will not say anything on this now,” is what he had told bdnews24.com in a pre-budget interview.

#The Valued Added Tax and Supplementary Duty Act has been formulated in 2012, but is yet to be effective. The government wants to implement it now despite protests by traders.

#The new law imposes a 15 percent VAT for all kind of businesses, whose annual turnover is more than Tk 3 million. The rest are exempted.

#Businesses, however, are not ready to pay VAT at 15 percent. They want the ‘package’ system to stay, which imposes a fixed rate instead of taxing on individual sales.

# Consumer rights bodies have also opposed a 15-percent VAT, saying that it will adversely affect commodity prices and shrink the people’s spending capacity. They also said that it might trigger tax evasion incidents.

#Official figures say, around 250,000 businesses are registered for VAT and only 68,000 of them pay in line with the ‘package system.’

Media reports suggest that the finance minister may finally give in to the demand by traders and retain the fixed VAT rate.

Amid this face-off between the government and businesses, former central bank governor Mohammed Farashuddin  has come up with a suggestion.

“The new law imposes a 15 percent VAT from July 1. Many small and very small businessmen do not even maintain proper accounts. So for them, a VAT of 5 percent instead of 15 may be fixed for the first year,” he had told bdnews24.com during an interview.

Economist Zaid Bakht supported the former governor and suggested implementation of the 15 percent VAT in phases rather than in one go.

Centre for Police Dialogue's  Executive Director Mostafizur Rahman said that he believes a budget dependent on VAT might not work.

The current budget sourced 36.5 percent of its revenue from VAT— in monetary terms Tk 642.63 billion.

The upcoming budget targets to raise Tk 800 billion from VAT.