Govt plans to cut advance tax by 1 percentage point

The government has a plan to bring about a major change in the VAT law to make it more business-friendly in the next budget for the fiscal 2021-22.

In this regard, the National Board of Revenue (NBR) has proposed reducing the advance tax rate to 3% from the existing 4% at the import stage.

The government will also give an exemption from advance tax to a number of industries, such as cement, steel, ceramic industries, computer parts, and mobile phones, to avoid complexities with respect to tax refunds, sources said.

Besides, the VAT waiver facility for the local electronics industry is likely to be extended to 2024.

The VAT evasion might also be halved from the existing two times of detected amounts and its simple interest will be reduced to 1% from 2%.

Steel scrap, ship scrap, and rods are subject to pay a specific VAT amounting to Tk1,200 per tonne. But, there are complexities in getting refunds. Cement, beverage and ceramic manufacturers whose value additions are less than 26.67%, are also facing similar problems in getting refunds, according to sources.

Md Shahidullah, secretary general of the Bangladesh Steel Manufacturers Association and also first vice-president of the Bangladesh Cement Manufacturers Association, told TBS, "The Advance Tax that we pay at the import stage is refundable, but the NBR does not do so, rather it deducts the amount as a minimum tax. Besides, we face harassment regarding the tax at source.

"Considering all these issues, we have demanded a temporary exemption from Advance Tax and the tax at source."

According to the NBR data, the new VAT law came into effect in the budget of FY20. The advance tax rate was 5%. In the current budget, the advance tax on raw materials at the import stage has been reduced from 5% to 4% to smooth the way for domestic industries.

Under the old VAT law, the advance tax was known as advance trade VAT (ATV), only commercial importers had to pay that manufacturing industries were outside the scope of ATV.

However, the new VAT law requires all industries except a few to pay advance tax at the import stage. While entrepreneurs are not getting the tax refund on time due to various complications. The industry owners have been objecting to this for a long time.

Sources said the advance tax system was introduced to increase VAT compliance through the submission of VAT returns. All industries involved in import-export activities are required to file VAT returns and all industries are brought under the advance tax.

But the system has been criticised for failing to provide timely refunds. Considering those issues, the advance tax rate will be slashed to 3 % from 4% in the next budget.

Not only that, many sectors will be excluded from the Advance Tax. For example, mobile phone sets and computer parts selling at the retail stage will be exempted from VAT due to non-exemption of Advance Tax on these products at the import stage.

In addition, the VAT exemption facility for the domestic electronics industry (air conditioner-fridge) is being extended. The notification is due to expire on 30 June this year. The term of this facility is being extended till 2024 conditionally in the new budget.

Earlier, the government has been exempting VAT on refrigerators and motorcycles since 2010. Motorcycles are excluded from the list in the current budget. Currently, only the AC-refrigerator and compressor manufacturing industry has VAT exemption.

Rizwan Rahman, president of the Dhaka Chamber of Commerce & Industry, told The Business Standard, "A 25% cut in Advance Tax will not be enough. The government should exempt us from Advance Tax, given damages that coronavirus has done to our businesses."

The proposal for reducing the VAT evasion fine can be considered for the time being. But if the number of VAT evasions goes up, the existing provision should remain in effect, he added.