VAT is one of the most important source of revenue as collected by the National Board Revenue (NBR). In the budget for 2014-15, the following provisions have been implemented by the Parliament.
With the object of full implementation of the new Value Added Tax and Supplementary Duty Act, 2012 (“the Act”) by July 1, 2015, a set of draft VAT and Supplementary Duty Rules, 2013 has already been framed. In order to implement the law successfully, NBR has taken up a project. Online registration shall be launched on January 1, 2015 and online filing of return will begin by the end of June 2015. Also, a comprehensive taxpayer’s education programme shall be launched for both the taxpayers and the tax officials in order to create an enabling environment. Under the implementation plan of the Act, a nationwide modern technology based computerized tax network system would be established which will pave the way for ensuring transparency deterring corruption. Further, automated tax regime has been installed to reduce the cost of compliance and to encourage tax payers to pay tax voluntarily which will result in significant improvement in tax collection.
Since there were no limitation to the discretionary power of VAT officials to impose fine in lieu of confiscation of goods under Section 41 of the VAT Act 1991, taxpayers were often subjected to harassment by such discretionary power of the VAT officials. Addressing this issue and to reduce the discretionary power of the VAT officials, the Parliament has fixed the maximum penalty in lieu of confiscation of goods not exceeding 50% of the evaded amount of tax.
The Parliament has also imposed a 1% “Environment Protection Surcharge” or “Green Tax” on ad-valorem basis on all kinds of products manufactured in Bangladesh by the industries which pollute the environment. This Green Tax is implemented to encourage the owners of the industries, which cause excessive pollution, to set up effluent treatment plants (ETP) and to make an endeavor to make them aware of the harmful effect of the environment.
1% “Health Development Surcharge” on all imported and domestically produced tobacco products has been imposed. Cigarette prices are based on 4 slabs. Tax incidence is determined on the basis of these price slabs. Under the budget, the tax incidence of the premium and high slabs is 76%. The medium slab is 75% and the lowest slab is 58%. On top of this, there is an imposition of 1% Health Development Surcharge on the above mentioned items and the fund so received is likely to be used for the treatment and rehabilitation of people affected by diseases due to tobacco.
To protect the local bidi industry the price of bidis was not raised for the last five years. However, the financial minister acknowledged that discouraging people from smoking is more important. As a result the price of the bidis are rised to BDT 6.14 for the 25 sticks non-filter bidis and BDT 6.94 for the 20 sticks filter bidis. Further, the supplementary duty (SD) rate on jarda and gul products has been rised from 30% to 60%.
In order to free the exporters from the hassle of getting duty drawback, few services namely procurement provider, security service, transport contractor, and imported service are included into the relevant exemption notification on VAT by the finance minister.
There were 23 sectors under the VAT regime, which were taxed on the basis of truncated base value system. The truncated base value system on air conditioned launch, bus and railway services has been canceled, and instead a standard rate of 15% VAT has been imposed. Besides, there are some other services namely; motor garage, workshop, dockyard, photograph maker, English medium school, immigration advisor and transport contractor (except petroleum product carrying contractor) services, where the net VAT is raised to 7.5% from 4.5%. Likewise, land development and building construction sectors and jewellery services have to pay an increased net VAT rate of 3%. Apart from these, net VAT rate for general restaurant service (not air conditioned) has been increased to 7.5%.
Several reforms are made on supplementary duty (SD) in this year’s budget with the objective of easing the implementation of the new VAT law. In this respect, some reforms are made to rationalize the existing tariff values. To come out of the culture of exemption, some reforms are introduced to abolish these exemptions on VAT. Some important reforms are as follows:
(a) VAT on crude and refined palm, soyabean and sunflower oil at the import stage was reduced from 15% to 10% on certain conditions and for up to 30 June, 2014. This concession is to continue up to 30 June, 2015.
(b) VAT on other edible oils such as canola, rapeseed, colza seed etc. at the import stage was 15%. It is now reduced by one third of the applicable tax and fixed at 10% at the import stage. VAT on the local production of these products is fixed at BDT1 (one) per litre.
(c) VAT exemption facilities to ocean going vessel which have capacity exceeding 5,000 DWT has been implemented. However the tariff value on small cargoes and passenger vessels is fixed at the rate of BDT 2,500 hundred per metric ton.
(d) The price of contraceptives is be free from any retail level VAT.
(e) The 15% supplementary duty (SD) on locally produced filament bulb is withdrawn to make it more affordable to the masses.
(f) The SD rate for TV channels was 25% and it remains the same. However, it will be reviewed after six months.
(g) The fixed tax of BDT 300 on the supply of each SIM card by the mobile operators remains the same. However there is a fixed tax of Tk.100 on the supply of every single piece of replacement SIM.
(h) For the proper collection and monitoring revenue, it is made obligatory on the part of the brick field owners to submit an unconditional Bank Guarantee equivalent to the tax payable at the time of making an annual declaration in respect of number of section or chimney to the VAT authority. Necessary amendment to the relevant rules which deal with the collection of tax from brick fields will be made in due course.
(i) Treatment of kidney disease is still very expensive in our country. To reduce the cost kidney dialysis solution is exempted from the payment of VAT at the local production stage.
(j) Physically ill and mentally dejected people get cured by taking meditation service. For that reason, meditation services are exempted from the payment of VAT.
Written by Junayed Chowdhury, Managing Partner
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