The National Board of Revenue has identified 10 major challenges, including introduction of standard value-added tax rate at 15 per cent, for a smooth implementation of the new VAT act.
The other challenges include abolishment of VAT exemption, tariff value, truncated-based and package VAT system, withdrawal of supplementary duty on most products at the import stage, lowering the level of protection given to the local industry and ensuring cyber security for online VAT payment system.
NBR officials said the challenges might put a negative impact on prices of goods and services at the consumer level.
The cost of doing business for entrepreneurs will rise and some domestic industries will have to face stiff competition from imported goods, they said.
They said the government might need to revise upward the allocation for the annual development programme because of an increased cost of project implementation.
The VAT wing of the NBR has already prepared a situation paper for finance minister Abul Maal Abdul Muhith mentioning the challenges the government has to face in implementing the VAT and Supplementary Duty Act-2012 which is scheduled to come into effect from July.
The paper will be sent soon to the finance minister for his appraisal and to make the government alert to the possible impact of the implementation challenges, officials of the revenue board said.
They said that the challenges might put a negative impact on the revenue collection as well as increase cost of doing business in the initial years of the implementation of the new VAT law.
Later, the new VAT law will be helpful to increasing revenue collection once all the stakeholders become used to it.
NBR member (VAT policy) Jahangir Hossain at a pre-budget discussion on Sunday said that there would be some challenges for the VAT authority for implementing the new VAT law.
He said that abolishment of tax exemption would be a major challenge as the sectors enjoying the benefit would be deprived of the advantage.
Currently, there is a long list of goods and services which are enjoying VAT exemption facility but in the new law the facility will be limited only to essential commodities.
The government may allow exemption for a limited period of time only to address national calamity, Jahangir said.
The number of products having SD at the import stage will be reduced to around 120 from the existing 1,600 that will severely reduce the level of protection for the domestic industries.
According to an NBR estimate, the level of protection for the domestic industry will drop to 23.3 per cent from the existing 50.7 per cent due to the measures to be implemented under the new law.
Jahangir said that the government would also lose Tk 3,000 crore in revenue because of the reduction in number of products which are subject to SD.
In last fiscal year of 2014-2015, the revenue board received Tk 17,000 crore from the sector but the amount will drop to Tk 14,000 crore under new VAT regime, he said.
According to the NBR situation paper, currently there are 85 products such as MS rod and other construction materials for which traders pay VAT at reduced rate based on the tariff value.
On the other hand, there are 20 sectors such as power which are enjoying truncated or reduced rate of VAT.
Cost of doing business and allocation for ADP may rise after abolishment of tariff value and truncated VAT for the sectors, it said.
Withdrawal of package VAT system may also affect the small traders.
Ensuring cyber security is another challenge for the government as all the transactions under the new VAT regime will be conducted online.
Source: New age