More local industries may get VAT exemption

The National Board of Revenue (NBR) has proposed exempting more local industries from the Value Added Tax (VAT) to diversify the country's manufacturing base and cut import dependence, according to the finance ministry and NBR officials.

In some cases, the revenue board has also put forward a proposal to offer them a respite from supplementary duty and advance tax up to 2026, to make these industries more competitive.

The local manufacturing of computers, laptops, other IT products, motor vehicles up to 1600cc, mobile phones, home electronics, diapers and sanitary napkins will come under the VAT exemption facilities.

At the same time, the agricultural machinery import might also enjoy the advance tax exemption and polypropylene staple fibre import is likely to get the facility as well.

The NBR may impose a condition requiring manufacturers to ensure value addition between 20% and 30%.

On 3 June, Finance Minister AHM Mustafa Kamal will place the new tax measures in parliament while presenting the budget for the fiscal 2021-22.

The period of VAT exemption on production of air conditioners and refrigerators will be extended by another two years, sources said.

In order to modernise agriculture technology, advance tax on import of agricultural machinery may be withdrawn.

In addition, a new section will be added to the VAT law to prevent the use of fake band roll or the re-use of band roll on cigarette packets with jail-penalty provisions to protect revenue.

As a result in the re-use of band roll or production fake band roll or storage, transportation, and marketing will be punishable by up to one year imprisonment or a fine equal to the tax payable, or both.

Besides, the VAT law will be amended by making it mandatory to submit the annual financial statements of the business establishments to the VAT department, according to the finance ministry and the NBR sources.

Industry sources said the local home appliance and electronics industry has become self-dependent, riding on the government's policy support, especially the exemption of VAT.

Now, the country is producing world class air conditioners and refrigerators and exporting them abroad.

Even a number of foreign brands have set up factories in the country and many brands are also planning to invest here.

Large investments in these two sectors have created employment for Bangladeshi youths, on the other hand, that also helps to save foreign currency.

Considering the impact of the second wave of Covid-19 pandemic, the NBR has proposed extending the VAT exemption facility by next two years to protect the domestic industry. Not only that, supplementary duty is also likely to be exempted for the next two years in the production of home appliances.

As a result, washing machines, microwave ovens, electric ovens, blenders, juicers, mixers, grinders, electric kettles, rice cookers, multi-cookers and pressure cookers manufacturers may not to be subject to pay VAT on the import of those raw materials and equipment.

Besides, to develop the computer and information technology device industry in Bangladesh, the NBR also proposed giving the VAT exemption for local production of printers, toner cartridges, injected cartridges, computer printer parts, computers, laptops, AIOs, desktops, notebooks, notepads, tabs, servers, keyboards, mouse, barcodes and QR code scanners, printed circuit board assembly (PCBA)/motherboard, router, network switch, power bank, modem, network device / hub, speaker, sound system, earphones, headphones, SSD/portable SSD, hard disk drive, pen drive, micro SD card, flash memory card, CCTV, projector, monitor, e-writing pads, USB cables, digital watches, and various types of loaded PCBs.

Besides, locally produced motor vehicles up to 1600cc are likely to get VAT exemption on the import of raw materials and parts till 30 June 2026. However, currently, those items have to pay advance tax at the import stage.

The upcoming budget also may give VAT exemption on imports of polypropylene staple fibre, raw materials for mobile phones and sanitary napkins and diapers till 30 June 2023.

The NBR may also give priority to the light engineering industry in the budget through conditional VAT exemption on the supply of equipment manufactured in the light engineering sector.

The condition is that the heavy industry of the country gets VAT exemption on the import of parts, and the local light engineering industry also will get that facility if they are able to supply those parts. However, the companies have to register for VAT and submit the VAT returns.

In addition, advance tax is likely to be withdrawn on the import of agricultural machinery to help the modernisation of agriculture.

These types of machinery are threshing machine, power reaper, power tiller, operated seeder, combine harvester, rotary tiller, weeder and weiner.

Imports of scrap vessels, steel industry waste and scrap, ferroalloy, sponge iron, and imports of ethylene glycol, terephthalic acid, ethylene/propylene for production of PVC and pet resins may get the advance tax waiver.

Besides, cashew nuts processing plants may get the same facility for importing cashew nuts.

To make the current VAT law more business-friendly and up-to-date, the advance tax rate at the import stage is likely to be reduced to 3% from 4%.

Besides, VAT evasion fines and simple interest will be relaxed.

On the other hand, the next budget may give more emphasis on monitoring to increase VAT collection.

The VAT law is likely to be amended to make a mandatory submission of annual financial statements of businesses with VAT returns within the first six months of the next tax year.

Currently, there is no need to submit financial statements.

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