New VAT law to be implemented in next fiscal year

The long-awaited Value Added Tax Act, 2012 will come into effect in fiscal 2019-20, according to Finance Minister AHM Mustafa Kamal.

A joint working group, comprising officials from the government and the private sector, will oversee the implementation of the new law, Kamal said in his budget speech.

The legislation was shelved in June 2017, mere days before it was due to take effect.

The minister proposed reforms and simplifications to the new law, which sets out reduced rates of 5 percent , 7.5 percent and 10 percent for specific goods and services along with the standard VAT rate of 15 percent.

Small and marginal traders with an annual turnover up to Tk 500,000 will be excluded from the VAT net, said Kamal.

The new budget aims to encourage small and medium-sized enterprises (SMEs) by allowing these to pay a 4 percent turnover tax on an annual turnover of Tk 500,000 to Tk 30 million.

The VAT registration threshold has also been increased to Tk 3 crore from Tk 800,000 while a 5 percent rate has been fixed for local traders.

The trade of pharmaceutical and petroleum products will be subjected to 2.4 percent and 2 percent VAT, respectively.

Kamal backed the VAT exemption accorded to the government's priority and fast track projects, such as the Bangladesh Economic Zone (BEZA) and the Public-Private Partnership (PPP) ventures.

“In addition, I am also proposing to continue existing VAT and supplementary duty exemptions given to the heavy industries like automobiles, refrigerators, freezers, air conditioners, motorcycles, mobile industries for the growth and development of heavy domestic industry and export sector.”

The finance minister also proposed exempting VAT on the production and supply of bread, hand-made biscuits and hand-made cakes up to the value of Tk 150 per kg.

In an effort to boost the agricultural sector, VAT exemptions have been accorded to local supplies of a number of machineries. Women entrepreneurs will also benefit from the new scheme as they have been excluded from paying VAT on the rent of business showrooms.

The exemptions further extends to the Rooppur Nuclear Power Plant project on the procurement of services from freight forwarders, clearing and forwarding agencies, insurance companies, suppliers and banking services.

However, products such as plastic and aluminium items, soybean oil, palm oil, sunflower oil, mustard oil will now fall under the VAT net.

Moreover, the finance minister has proposed VAT on astrologists, marriage media services and on  the supply of entertainment programmes, serials, drama and telefilms to be broadcast on television channels and online media such as YouTube and Facebook.

“In addition, I am also proposing to impose VAT at the import stage on telecom equipment as they have been enjoying exemptions for a long time,” added Kamal.

Based on the proposed tax management steps, the total revenue collection has been estimated at Tk 3.7 trillion in the upcoming fiscal year. Of this, Tk 3.2 trillion is set to be collected through the National Board of Revenue, or NBR.

Tax revenue from non-NBR sources has been estimated at Tk 145 billion while non-tax revenue is projected at Tk 377 billion.