IMF regrets delay in new VAT law implementation

Dhaka,  Wed,  27 September 2017
Published : 15 Jul 2017, 00:40:23 | Updated : 15 Jul 2017, 09:16:02
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IMF regrets delay in new VAT law implementation

Syful Islam
The International Monetary Fund (IMF) has regretted the delay in enforcement of new VAT law and called into question "the determination to persevere with needed structural reforms" essential for transforming Bangladesh into middle-income status.

The government eventually put in abeyance execution of the Value Added Tax (VAT) and Supplementary Duty Act 2012 for two more years amid persistent demand and protest by businesses and many other quarters.

"We attach great importance to implementing the new VAT law, a key component of the IMF's Extended Credit Facility (ECF) arrangement with the Government of Bangladesh that remains incomplete," IMF Resident Representative in Dhaka Stella Kaendera said in an e-mail interview.

While placing the budget for fiscal year 2017-18 on June 1, finance minister AMA Muhith announced that the VAT law that provides for a uniform 15 VAT would come into force from the new fiscal year.

Country's business community opposed the uniform VAT rate for all taxable tooth and nail. In the face of strong protest by businesses the government at the last moment, before passing the budget, postponed the enforcement of the new VAT act for two more years.

The government, while taking a US$1.0 billion ECF from the IMF in 2010, had pledged to introduce a new VAT act. Thereafter, the Value Added Tax (VAT) and Supplementary Duty Act 2012 was enacted on IMF prescription.

Three weeks after the budget was placed, the World Bank hailed the move to enforce new VAT act. While assessing the budget proposal, World Bank country director for Bangladesh Qimiao Fan said implementation of the new VAT act would be critical to achieving the fiscal targets set in the budget.

Ms Kaendera said the IMF wants implementation of the new VAT act for betterment of Bangladesh economy.

"Raising public investment and social spending to levels consistent with the government's growth ambitions without compromising fiscal sustainability will require boosting Bangladesh's low budget revenue. Launching the VAT is central to this effort," she noted.

"But beyond its direct revenue benefits, the law is a necessary step for modernising Bangladesh's tax system, as implementation will improve compliance and reduce tax evasion across the board and serve as a key building block for future tax policy reforms," the IMF representative added.

"For these reasons we find the delay in the VAT launch regrettable, and call into question the determination to persevere with needed structural reforms which are key to transforming the Bangladesh economy into middle-income status, a longstanding aspiration of the government," she noted.

To a query regarding possible price hike of essential commodities as a knock-on effect of VAT hike Ms Kaendera said, "…the VAT law shields the consumption basket of low-income households by exempting some commodities from VAT."

syful-islam@outlook.com
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