Economists for 12pc VAT to be tolerable

IN a pre-budget meeting economists have said the Value Added Tax (VAT) rate should be 12 percent in the country in line of the low- and middle-income countries in South and East Asia and we must say it is a highly sensible proposition. Their suggestion at a meeting at Brac Inn also asked the government to adjust VAT rates with prices of utilities such as gas and electricity to avoid serious burden on consumers. Particularly they have called for reducing the prices of kerosene and diesel used by the poor and in mass transports and irrigation. They are quite right when they said it is important to keep the adverse impact of higher VAT on low-income people.

Economists have pointed out that VAT rate at 15 percent is on the high side for Bangladesh when compared to neighbouring low-and middle-income countries in the region. They have therefore rightly suggested the rate should be at 12 percent. The government is going to introduce VAT at 15 percent it in the next Fiscal Budget for 2017-18 to begin from July this year. Economist Towfiqul Islam Khan said the global standard rate is 15 percent, but in South and East Asia and among low-and middle-income countries, it is 12 percent. So Bangladesh must go for it instead of overloading business and common people with higher rate in a single drive.

The next budget will be for Tk 4.02 trillion as the Finance Minister hinted. Economists said the revenue expansion in the next budget with a huge jump in VAT collection will enable the government to lower the rate without adverse impact on revenue collection. They have feared that depreciation of the value of money with a rice price hike and further increase in tariffs for electricity and gas will add new burden on industry and common users of utilities. Consumers will have lower disposable income due to declining remittance inflow and the increase in indirect tax coverage.

To reduce the impact, they have suggested cuts in the prices of kerosene and diesel, which would help raise consumers’ disposable income.

Economists have made a timely warning that the cost of production in almost all sectors might go up with new VAT law. So the government must not lose sight to its adverse impact on the economy and business.

In our view the government must not take giving a huge budget as the only priority when a bigger part of such budget is being misused in big corruption and grabbing of fund under the cover of mega projects. Big budget is targeting businesses and common people to pay but the benefits are mainly going to people at the Center of Power and getting construction and supply contracts. So there must be balanced outlook to leave lower burden on poor and low-income people. Business also must not be unduly overloaded. So the VAT law must be put into affect accordingly.