VAT’s lofty dream on a splintered law

The National Board of Revenue (NBR) has failed to achieve a growth in revenue for the first time this year because of the incompleteness of the new VAT (value-added tax) law, which is also a puzzle to businesspeople.

The NBR prescribed some reforms to the law – passed in parliament in 2012 – long after the board had made it effective from this fiscal year. But those reforms are yet to be completed.

Despite all these obstacles, the government is going to set a target of collecting Tk1.28 lakh crore from VAT with 16 percent growth in the next budget.

According to revenue board sources, the government is planning to raise the supplementary duty on mobile phone talk-time, cigarettes and luxury goods to achieve the target. The sources said the supplementary duty on mobile phone talk-time might be raised from 10 percent to 15 percent.

Besides, the NBR has proposed raising the excise duty on bank deposits of more than Tk10 lakh.

The Covid-19 pandemic has severely affected the economy, reducing people's income as well as imports and production in the industry sector. Besides the targeted VAT revenue, these will be huge challenges for the next fiscal year to recover the economy.

Economists think that amid the present scenario, a VAT target of Tk1.28 lakh crore with 16 percent growth will put pressure on people's lives.

Ahsan H Mansur, executive director of the Policy Research Institute (PRI), said the current VAT law is the old wine in a new bottle.

"The new VAT law says about online [activity] but the NBR is still far away from becoming online. The main law directed about a hundred percent online activities including registration, payment of VAT etc. But now the authority of VAT registration is at the hand of the commissioner.

"Earlier, there was a universal rate in VAT but now it has eight slabs. So, there are some obscurities about rebates," said Ahsan H Mansur.

"It is not possible to achieve such a high target with this law," he added.

There is still some confusion on how the VAT law will be implemented at the field level despite having a bunch of directives to implement the law in the budget of 2019-20. It is not clear on what basis the limit of VAT exemptions will be determined after the repeal of the package VAT system.

The decision of mandatory automatization of accounting is yet to be implemented. The NBR could not automatise the determination process of the turnover of businessmen though the limit of the turnover was fixed at Tk50 lakh.

There was also an initiative to provide Electronic Fiscal Devices (EFD) to business institutions to collect VAT. The initiative was taken in January 2019 but it is yet to be implemented.

The law prescribed online submission of VAT returns and payment but that is also a far cry. Only the Jashore Commissionerate has created a fully online system to submit a VAT return.

The NBR does not have full preparation to implement the new VAT law right now. As a result, in the first 10 months of the current fiscal year, the growth in VAT is zero.

From July to April 2019-20, the NBR collected only Tk67,000 crore which is Tk50,000 crore less than the target. The target was Tk1.17 lakh crore which was decided by assuming a growth of 35 percent from the previous year's.

NBR officials said it is not possible to fulfil the target in the next two months amid the Covid-19 pandemic. They are considering the target of achieving a growth of more than 16 percent is illusory.

An NBR high official said, "The NBR is afraid that there could be a negative growth this year because the law is not fully implemented. The coronavirus crisis will also be a reason."

He said, "We directed the field level offices to collect VAT of the current fiscal year like the amount of the previous year. If that target is achieved, the growth target of next year will be 33 percent."

Mosharraf Hossain Bhuiyan, former chairman of the NBR, thinks it is not possible to achieve such a target amid the current fragile state of the economy.

"The target of the current fiscal year was also unrealistic for NBR. In this situation, the new target in the VAT sector will increase the pressure," he told The Business Standard.

According to finance ministry sources, a target to raise Tk3.30 lakh crore in taxes through the revenue authority has been set in a targeted national budget of Tk5.5 lakh crore for the fiscal year 2020-21.

The fresh target is 10 percent more than the revised target for the current fiscal year. Among the NBR targets, Tk1.28 lakh crore will be collected from the VAT sector, Tk1.05 lakh crore from the income tax sector and Tk96,000 crore from the customs.

The VAT sector will provide 38.78 percent of the total revenue collection while the VAT collection target is 36.11 percent against the total revenue collection in the current fiscal.

The income tax collection target has been set at 31.81 percent against the total collection while it is 35.50 percent in the current fiscal year.