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VAT exemption areas to be widened

The government is widening VAT exemption areas to minimise the pressure of price hike on consumers that may be caused by the enforcement of new VAT law.
Sources said the National Board of Revenue (NBR) has decided to add more than 200 essential goods and services to the current list of over 1,900 items enjoying VAT exemption under the new Value Added Tax and Supplementary Duty Act, 2012.

Under the budget to be placed today, the government is imposing supplementary duty (SD) on a large number of products at import-stage to give protection to domestic industry, said officials of the finance ministry and the National Revenue Board (NBR).

Currently, importers have to pay supplementary duty on imports of 1,420 products.

Initially, the number of products was lowered only to 170, which sparked severe criticism from local manufacturers.

NBR VAT Online Project Deputy Director Zakir Hossain said the government has finalised a list to impose SD at import stage.

He said there are 1666 HS numbers (Harmonised System Code) to impose SD on products at import stage.

“It is very difficult to calculate the total number of products, as more than 50 products fall in single HS line,” he added.

The products which enjoy significant local production and import substitute items will face supplementary duty, he said.

Supplementary duty is imposed mostly on final goods to provide protection for domestic producers from uneven competition with imported finished goods and promote industrialisation in the country.

The duty is also imposed on luxury and health-hazard items to discourage their use by making them costlier.

The new VAT law is scheduled to be effective from July 1 this year, aiming to initiate the modernisation and digitisation of the tax system in the country.

Under the new law, the VAT rate will be simplified from the complexity of various rates to a uniformed rate at 15 percent on all goods and services at consumers level.

But the business community has not accepted the rate. Business leaders are demanding reduction in rates and introduction of multiple rates.

Finanace Minister Abul Mal Abdul Muhit recently turned down their demand by saying that the VAT rate would be 15 percent for all.

However, the government is trying to minimise the pressure of price-hike on consumers through widening VAT exemption area.

Sources said more essential goods and services, including edible oil, sugar, land and apartments, ICT, training activities and products under agriculture, livestock and life-saving drugs, would come under the VAT exemption benefit.

All types of basic foods, agricultural products, medical services, life-saving medicines, education (except English medium schools) will enjoy VAT exemption.

Purchase of all types of residential and commercial apartments below 750 square feet will be VAT exempted in the new law which is now subject to minimum 1.5 per cent VAT on total sales value, they said.

Currently, there is 2.5 per cent VAT on transfer price of land in the existing VAT law but in the new law it will be totally VAT exempted.

More than 20 types of life-saving drugs, including kidney dialysis solution, equipments for heart operation including heart rings, blood bags will be added to the exemption list.

All types of agricultural products like rice, wheat, atta, vegetables, spices, fruits, milk, salt, fish, meat, and domestic animals will come under VAT exemption list.

Processed agricultural products, packaged or unpackaged, unless those are cooked, will also be VAT exempted.

Currently, only unprocessed agricultural products are VAT free.

Transportation of agricultural goods will be VAT-free.

There will be no VAT on public transport fare including taxicab service, except inter-city air-conditioned services.

All types of medical services will be VAT exempted in the new law.

IT sector and export-oriented industries will enjoy VAT waiver on rent for office and factory in the new law.
Currently, only factory rent is VAT free.

All types of procurement for development projects under public-private partnership scheme, foreign assistance and fast-track projects will be exempted from VAT.

Local information technology sector will not need to pay VAT on supply of information technology enabled services to government and other entities authorised for VAT deduction at source which is now subject to 4.5 per cent VAT.

Training activities offered for skill development, except coaching centres, will come under VAT exempted facility.

15 percent VAT will be imposed on electricity bills, but NBR will adjust it with distribution companies so that power bills do not shoot up at subscribers’ level.

Besides, the same VAT rate will be imposed on MS rod but its existing supplementary duty will be readjusted to make the item’s price lower at the consumers’ level.

Source: Daily Sun, Dhaka, Bangladesh


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