Most experts agree with the FBCCI that the planned 15% uniform value added tax will be very difficult to implement and hit businesses hard.
While it is desirable the NBR heed public concerns and make the VAT adjustments sought by business bodies, the government also needs to rethink its revenue collection strategy.
By definition, VAT and other indirect sales taxes, are regressive and unfair, as they place a relatively far bigger burden on poorer customers.
In principle, the tax system would be fairer if more progressively gradated taxes were levied on earned and unearned income.
The main reason why dependence on VAT and indirect taxes is growing is the failure of successive governments to clamp down on tax evasion and broaden the tax base. Official figures indicate less than 2% of the population pays income tax.
Although, in part, this reflects the low level of typical incomes, it is clear there is a huge amount of tax evasion. This has increased reliance on regressive taxes such as VAT as a source of revenue, because the transactions on which these are levied are harder to hide and easier to collect.
As incomes rise with the country moving to middle income status, it is absolutely essential the government clamps down on evasion.
While VAT forms a necessary part of government income, it is desirable the government move its focus away from indirect taxes to reduce the unfair burden on citizens with lower incomes.
The government must speed up progress on initiatives to reform the tax system so that it is made fairer and the country’s tax base can become more inclusive and self-reliant.
It must do more to root out evasion and simplify and encourage collection of income taxes to help broaden the tax base in a fairer manner.
Source: Dhaka Tribune
