People brace for VAT-induced price hike as FY20 begins today

A file photo shows a vendor selling spices in Dhaka. The financial year 2019-20 begins today with people bracing for price hike of commodities due to the implementation of new value-added tax law. — New Age photo

The financial year 2019-20 begins today with the government facing a number of challenges including surging non-performing loans in banks, sluggish private and foreign investment, inflationary pressure due to implementation of new value-added tax law and achieving a mammoth revenue collection target, economists said on Sunday.

It would be the prime challenge for the government to streamline the country’s banking sector amid the growing defaulted loans, they said, adding that without establishing discipline in the banking sector, private sector investment would not increase and employment generation might remain stagnant.

They observed that the implementation of new VAT law would put an extra burden of commodity price hike on middle- and lower middle-income groups of people as the rate of the tax was raised for many products and services.

World Bank Dhaka office lead economist Zahid Hussain told New Age that the government would have to face big challenge in the banking sector in the financial year 2019-20 due to rising defaulted loans and increasing liquidity crisis.

‘If the government fails to discipline the banking sector, the private sector credit growth will remain stagnant,’ he said.

The government imposed 5 per cent advance tax on import when the banking sector has been facing liquidity crisis, which would increase the necessity of working capital for the private sector, said Zahid.

Not only investment, the problems in banking sector might hamper production due to lack of working capital, he said.

The amount of defaulted loans in the country’s scam-hit banking sector increased to Tk 1,10,873.54 crore in the first quarter of 2019 because of a 31-per cent increase in non-performing loans in private commercial banks.

The figure of defaulted loans would reach Tk 1,63,758 crore if the amount of write-offs, Tk 52,884 crore, was added to the figure.

The amount of non-performing loans grew by 18.06 per cent or Tk 16,962.14 crore in the first quarter of the calendar year 2019 from Tk 93,911.4 crore at the end of December, 2018.

Zahid said that the implementation of VAT law might impact on inflation as the rebate system in the law lacked clarity.

The government has already increased the price of gas and it would impact on the prices of products and services, he said.

Zahid said that the new VAT law would create confusion as VAT officials might take the opportunity to interpret the law at their own will.

‘If the sympathetic approach to the loan defaulters is maintained, the government will have to face big challenge in banking sector in the new financial year,’ former Bangladesh Bank governor Salehuddin Ahmed said.

There is no clear indication in the budget for the banking sector’ reform and without governance in the sector the private sector credit growth target could not be achieved, he said.

Salehuddin said that the rising non-performing loans would hamper private sector investment and employment generation.

He also said that the new VAT law would not bring anything positive for the middle- and lower middle-income groups of people rather it might fuel inflation as the rebate process was difficult in the law.

Salehuddin said that the government would not bother about the impact of VAT law on the lower-income group of people as the government would have to depend largely on the tax to achieve its huge revenue collection target.

The National Board of Revenue has already estimated that new Value-Added Tax and Supplementary Duty Act-2012 would result in collection of additional Tk 37,582 crore in VAT and SD from consumers in this fiscal year.

The revenue board has targeted the VAT sector to achieve its huge revenue collection target set at Tk 3.25 lakh crore for FY20.

Of the revenue amount targeted, the NBR has set the target of collecting the highest — Tk 1,17,672 crore — from VAT, which is basically paid by consumers and businesses.

Selim Raihan, executive director of South Asian Network on Economic Modeling, said that private sector investment would be a big challenge for the government in the new financial year as investment remained stagnant for last few years due to various reasons.

Establishing discipline in the banking sector would be another big challenge for the government, he said.

Selim also said it would be a challenge for the government to go for faster implementation of mega projects as the investment issue was related to the implementation of the projects.

He said that the implementation of VAT law would also be challenging as there were some confusing areas in the law.

 

Source: New Age.

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