Wednesday | 15 January 2025 | Reg No- 06
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Wednesday | 15 January 2025 | Epaper

New VAT law, and local industries

Published : Monday, 22 May, 2017 at 12:00 AM  Count : 246
Haradhan Ganguly
Present time is observing a new dimension of a pre-budget debate or discussion centring round the new VAT law, and its impacts on general price level in markets, especially within the purview of coming holy Ramadan. The trajectories in its way of implementation are also a matter of concern. Timely effective monitoring of new VAT law has become an utmost need.
We all know a uniform 15 per cent VAT (Value Added Tax) under a new VAT law is going to take effect from July, though it has possibility to be 10 to 12 per cent due to the demand of different business groups, economists and think-tanks like CPD.
Even Finance Minister A M A Muhith gave a hint of declining new VAT rate. Will it fuel up the market price of essentials? Since National Board of Revenue (NBR), Bangladesh, officials told media on 14 May 2017 that essential commodities, agricultural products and life-saving drugs are going to be exempted from VAT under the new VAT law.
A list of VAT free products is going to be declared. Thus, dishonest traders cannot charge higher prices for commodities on the excuse of imposition of a uniform 15 per cent VAT. But, maintaining consummate account book is far off reality to be seen later on.
The NBR's income last fiscal year stood at TK 1,56,000 crore, with VAT contributing 37 per cent, income tax was 36 per cent and import duty was 27 per cent. With the implementation of the new VAT law, the NBR is trying to bring the informal sector to the formal sector to increase revenue collection.
Our tax-GDP ratio is low if compared with our neighbouring country. In Bangladesh, under the existing system, many businesses can avoid VAT because of the lack of records, which ultimately deprives the government. The producers pay VAT, not distributors and retailers.
It is clear that if the NBR does not monitor in every point of supply chain of goods and services, the new VAT law will be not be executed properly. Even the VAT rebate facility of the government might be backtracked to distortion again. In addition, the unscrupulous businesses groups will raise the prices of essential commodities on the excuse of VAT. Peoples' ignorance and the absence of effective monitoring from NBR will boost inflationary pressure particularly during Ramadan.
The prices of basic commodities and daily used products like electricity will not rise due to implementation of New VAT law. It is not the new VAT law but the distorted form of its execution that might turn down the good effect of new VAT law.
Moreover, the supplementary duty is going to be withdrawn from the new VAT law in the next budget. Thereby, various local industries would face uneven competition. Nearly 1350 imported goods are getting exemption from supplementary duty. It will create an uneven competition with our local industries. As a result, local industries will be at stake.
New VAT law is withdrawing it to comply with World Trade Organization's (WTO) decision. Henceforth, supplementary duty will no more exist on all imported goods and services, except only 170 goods and services. That means, after next July, 1350 imported items will be cheaper in competition with the same goods produced in Bangladesh.
Items like ceramic, plastic, shoe, soap, cloth, tissue paper, readymade garments for local markets, foods, iron and steel products, glass products etc will fall prey to uneven competition with imported items.
Nearly 30 types of industry are going to face crisis in the withdrawal of supplementary duty. For their protection, from 10 to 60 per cent supplementary duties are imposed on imported goods, which are going to be withdrawn.
Earlier, importers used to give 45 per cent supplementary duty on imported readymade garments, shoes, biscuits, cake and bread, potato, glass, rod, iron and steel products. Around 20 to 30 percent supplementary duties were imposed on soap, salt, mosquito coil, plastic pipe and other fittings, silk cloths, tomato sauce, food colour, toilet papers and facial tissues, blade, electric goods and other related goods for home consumption. Cancelling supplementary duties will pave ways to other serious issues. For instance, importers might not announce the real price of imported goods and money laundering might occur.
The government wants to restrict inflation. But, protection of local industries should not be less emphasized. Controlling inflation and protection of own industries--these two should be addressed with the same weight.

The writer Secretary of the United Nations Association of Bangladesh (UNAB), and can be reached at gharadhan@gmail.com






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