THE government decision to hold back the implementation of amended Value Added Tax (VAT) law from July this year, which calls for a flat rate of 15 percent, has been a good decision as far as the demand of the business community is concerned. Indeed the government is trying to put it in use for the past few years, but Chamber Bodies and Trade Associations remained opposed to it saying they are not yet ready for the blanket rates. Moreover consumers’ bodies remained outside any such consultation making it almost arbitrary. But the government is also under pressure from donors’ community to implement the law and International Monetary Fund (IMF), which had even withheld the release of a loan installment last year for delaying the implementation of the new VAT Act. We appreciate the government decision when it attempted to take the concerns of business onboard in implementing the amended VAT law. In our view the government must pay heed to businesses’ concern; no matter what outside agencies want to see overnight in the name of tax reforms in the country. While the country’s overall business climate is unsatisfactory, local and foreign investors are thinking twice about investment risks and FDI and remittance inflows are shrinking, the government must be sensible to give space to business to be able to overcome difficulties and chart out new growth trajectories. The situation in banking sector is also suffocating due to loan scams, the capital markets is in a bad shape and the country losing huge money every year in the form of capital flight, any regressive tax on the business community in this situation will have negative effect to their efforts to beat back business challenges. Meanwhile, business leaders’ suggestions as the FBCCI has put forward to increase ceiling of VAT-free turnover to Tk 36 lakh, setting turnover VAT at 3 percent for upto Tk 1.5 crore and such other proposals may also be positively considered by the government when its demand for higher tax revenue is also rising every year as the size of the budget is growing. But the government can’t overload the business with growing tax burden when its quality of expenditure is very low and corruption and misuse of budgetary resources are spoiling a big part of the budget. It must plug the loopholes. We know VAT on different commodities and at various stages of manufacturing and services will ultimately put the burden on end users –the ordinary people. So there is a growing need for harmonization of VAT with its load on the people by the nature of commodities and services as to who use them. VAT on salt and sugar can’t be at per with luxury goods although the flat rates so demand. In our view the government must carry out extensive consultations before the flat rates being finalized that will be now implemented from 2017-18 budget year. Any indiscriminate implementation of the new VAT law may prove counter-productive if sensible changes were not worked out in it.
