Doulot Akter Mala

The government has made a first-ever move to introduce a new business-friendly Value Added Tax (VAT) law from next fiscal replacing the existing one with the recommendations of International Monetary Fund (IMF).

"The new law will replace the existing VAT law introduced in 1991 as the existing VAT law was totally distorted in the last 18 years," National Board of Revenue (NBR) Chairman Nasiruddin Ahmed told the FE Monday.

The new VAT law will be prepared in line with inputs from different levels of experts both local and foreign, he said.

"We will re-write the law on an urgent basis so that the VAT system could be run properly," he said.

Existing VAT law, introduced in 1991, has drawn criticism from the IMF. The IMF has been urging the government to re-write the VAT law for long terming the existing one as 'excise law' due to distortion and changes.

The multilateral development agency has also placed a set of recommendations to the government for overhauling the VAT law.

The NBR has formed a high-powered committee to write the new VAT law. The committee is headed by Ahsan H Mansur executive director at the research firm Policy Research Institute (PRI). The committee will start working from November 1 next.

"The government aims to introduce the new VAT law from the next fiscal after overhauling the existing one to make it business-friendly," said Ahsan H Mansur.

The newly formed committee will carry out major changes to resolve distortion in the VAT administration, he said.

"It is difficult to term the existing law as 'VAT'. It became excise law after massive changes," he said.

"Our aim is to make the system more investment-friendly diverting it from excise. There will be no truncated base or flat rates," he said.

VAT is a consumption tax that is collected from consumers. Tax incidence should be zero for investors as they will just deposit the tax to the public exchequer, Mansur said.

But, the existing law forces the investors to pay the tax which is 'tax-on-tax' on them, he added.

"There will be horizontal implication of VAT in the new law," he said.

In the existing law, supplementary duty (SD) is imposed on import of luxury goods but it should be imposed equally on local luxury products also, he said.

Officials said the government has distorted the VAT system through issuing a number of statutory regulatory orders (SROs) to give exemptions.

"The new law will compile and integrate all the SROs that we issued during the last 18 years for different purposes," a senior VAT official said.

VAT could be the major source of internal revenue earning if the government could frame an appropriate law and enforce the law properly, he said.

Presently, VAT contributes 34 per cent of the total internal revenue budget.