Govt weighing up alternatives to new VAT act execution

Dhaka,  Sat,  23 September 2017
Published : 14 Jun 2017, 00:38:22

Govt weighing up alternatives to new VAT act execution

Counts economic fallouts, pre-poll political repercussions
Govt weighing up alternatives to new VAT act execution
Jasim Uddin Haroon and Syful Islam

The government is examining the alternatives to the implementation of the much-debated VAT act in its existing form, mainly for the opposition from businesses, a highly placed source told the FE.

The government may even postpone its implementation, the source said.

In the process of a rethink, the government is weighing up the impacts of the new VAT rate on public life, especially those in limited-income bracket, and its repercussions ahead of next general election, said the source in the finance division.

The value-added tax (VAT) act 2012 is scheduled to introduce a uniform 15 per cent VAT rate which many believe will raise the cost of living.

People familiar with the developments told the FE that the last cabinet meeting, held at the national parliament Monday with Prime Minister Sheikh Hasina in the chair, reached a consensus on the imperative of postponing implementation of the VAT law from July 01 next.

But the meeting didn't set any new timeline for enforcement of the new VAT act.

Sources said the high-ups from the National Board of Revenue (NBR) and the finance division were also present at the meeting that weighed the implications of execution of the law at this juncture of time-not far off from the next polls, due early 2019, or little before.

While talking to The Financial Express at his secretariat office Tuesday, senior secretary of finance division Hedayetullah Al Mamoon, who had attended the meeting, declined to comment on the issue.

"This is a matter of the NBR. Officials of the NBR can comment on it," he said.

Executive Director of the Policy Research Institute of Bangladesh Dr Ahsan H Mansur, who was involved with the framing of the new VAT act, said he also heard about government's unwillingness to go for implementing it this year.

"This is one of the major reform programmes this government has taken. Dropping the new VAT act won't be a wise move," he told the FE Tuesday.

Dr Mansur thinks the businesses will also be loser as the new VAT system is much progressive.

The economist said the revenue collection would also be impacted upon as it is believed to be the biggest source of revenue mobilisation.  

Contacted over telephone, president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) Shafiul Islam Mohiuddin told the FE he was aware of the developments regarding the new law.

The Prime Minister has already given some instructions to officials concerned. "I am not sure if the entire act will be dropped this year. But, it will definitely be revised," said the chief of the apex trade body.

Mr Mohiuddin said he had meeting with Prime Minister Sheikh Hasina on this issue. "She does not want the essential prices go up and common people suffer."

NBR member (VAT policy) Barrister Jahangir Hossain, who also attended the meeting, wouldn't make any comment on this issue.

Contacted over telephone, NBR chairman Nojibur Rahman said no decision was taken about jettisoning execution of the VAT act this year.

"The issue is openly being discussed in parliament. We are working on it," he told the FE.

NBR sources said the cabinet meeting asked them to exercise three alternative options centring the act. Those are: what's the impact of non-implementation of new VAT act, implications of continuation with multiple VAT rates, and implications of lowering VAT rate from the proposed 15 per cent.      

Officials said non-implementation of the new VAT act will put impact on budget financing and it may raise the deficit which is now estimated at 5.05 per cent of the gross domestic product (GDP).    

If it really happens, they said, a major portion of the budget speech presented in parliament for fiscal year 2017-18 would become redundant since most part of the speech concentrated on the new VAT and Supplementary Duty Act 2012.

The budget speech has 20 big paragraphs on implementation of the new VAT act and its benefits for the economy and the businesses.

The national board of revenue has targeted Tk 912.54 billion, up by Tk 225.79 billion from revised budget estimation, to be mobilised from VAT next year, according to budget documents.

Following suggestion from the International Monetary Fund (IMF), the government framed the new VAT law. Introduction of 15 per cent VAT was one of the conditions of the IMF for extending US$1.0 billion worth of Extended Credit Facility (ECF) to Bangladesh in 2010.

Meanwhile, the IMF in its Article IV Consultation Mission report, published last Friday, welcomed Bangladeshi authorities' commitment to launching the modern VAT Act from July next.

The planned launch of the modern value-added tax in July 2017 and improvements in tax administration are expected to boost tax revenues, providing space for increased public investment and social spending, it said.
Editor : A.H.M Moazzem Hossain
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