No initiative for revenue sector reform

The coronavirus pandemic has reduced people's income, and expenses as well. A stagnation has come about in both the industrial and service sectors. The proposed budget for the upcoming fiscal year has not a speck of what kind of reforms are needed to raise additional revenue without increasing the cost of doing business during this great crisis of the economy.

Despite the declaration to make the 'Value Added Tax and Supplementary Duty Act, 2012' effective from the current financial year amid the extreme objections of businessmen, it has not been implemented properly. Despite the announcement of the introduction of Electronic Fiscal Device (EFD), it could not be done. This time the old declaration has just been renewed. There is no plan for when the EFD will be launched and how it will be implemented properly.

The Center for Policy Dialogue, PRI and various research institutes and economists had recommended starting work from the next financial year to stop tax evasion and smuggling in order to collect additional revenue in a weak economy. The proposed budget has called for forming a new tariff law next year, but it said nothing about the new income tax law.

Former chairman of the National Board of Revenue (NBR) Mohammad Abdul Mazid told The Business Standard that there was no plan with a timeframe to implement the VAT law. There is no mention of when and how much EFD will be launched. Therefore, it will not be possible to implement this law properly in the next fiscal year as well.

Businessmen and even some government policymakers have reservations over the five percent advance income tax (AIT) at the import level. The finance minister did not say anything about reducing AIT or adjusting the money taken for AIT as soon as possible. However, he has proposed reducing the advance tax (AT) on import of raw material from five percent to four percent for local manufacturing industries.

The proposal of 80 percent tax rebate on transport services has tried to cover some of the losses incurred during the general holidays. This will not benefit the around five million workers in the sector who remain workless for more than two months.

At the business level, there has been VAT exemption on agricultural machinery, and various exemptions for the poultry industry in the budget. 

At present there is a 0.25 percent source tax on readymade garment exports and a 1 percent source tax on other export products. It has been proposed to make it 0.50 percent in all cases in the next financial year. This will double the source tax on garment exports, but will halve it in all other sectors. However, concessions have been given for the import of RFID tags, industrial racking systems and cutting tables used in the garments and textile industries.

AB Mirza Azizul Islam, a former finance adviser to the caretaker government, told The Business Standard that the source tax on garment exports is deliberately increased in every budget. Because the Bangladesh Garment Manufacturers and Exporters Association maintains a very strong lobby, and despite the reduction in budget proposals, they force the government to reduce it further by exerting influence. Therefore, in the proposed budget, the tax is always increased a little, so that even if it is reduced later, the revenue from the main export sector can be obtained as per the expected target of source tax.

Since last year, a large amount of yarn has remained unsold in the domestic textile industry. The Bangladesh Textile Mills Association said this sector has also suffered a massive loss due to the coronavirus. Therefore, there is a proposal to reduce VAT on yarn produced in domestic textiles. Now all types of yarn have five percent VAT based on price, which is being made Tk3 per kg. However, polyester, rayon and synthetic yarns are subject to Tk6 VAT per kg.

Extension of concessional facilities for import of raw material for automobile, refrigerator, freezer and air conditioning industries and exemption of VAT and supplementary duty in various industries including these industries have been maintained. Concessional facilities are being extended for the import of raw material for the sanitary napkin and diaper industries.