First News
Volume:8, Number:03
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Business & Finance 1
THIS WEEK

Coping With the Withdrawal

After the new VAT rules were put on hold for two years, the only option remaining is to downsize the budget and the planned expenditures

| Monowar Hossain |

The uphill task of mobilizing resources from the domestic sector to finance implementation of the budget for the current year (2017-18) is going to be difficult after the withdrawal of new VAT rules. It is not only going to be a challenge for the revenue collection apparatus of the government, National Board of Revenue (NBR), but the finance ministry itself is very uncertain about how to move with the implementation work of the national budget in its present shape.

The observers, mostly former bureaucrats dealing with budget formulation and implementation, economic researchers, analysts, and NBR officials converge in their views that in this unexpected new situation, revenue target and number of development projects would essentially need to be downsized. These may have to be done even before the routine revision of the budget, which is generally done in the middle of the financial year (December or January). The situation, seen to be highly unmanageable, has emerged as the government, just before the budget was passed in parliament, announced the holding of the proposal for implementation of new VAT rules on for two years. This was a big blow to NBR as it had planned to mobilize an additional amount of about BDT200 billion under the VAT head alone. Before the incorporation of the new VAT at 15 percent flat rate in the proposed budget, a nongovernment policy research group had done a thorough paperwork on the issue, the possible impact on the economy, and the people once the new flat rate was implemented. A very important argument was that the consumers have been paying 15 percent VAT on many goods and services for quite a long time and but the question is where the amount collected is going – to the government exchequer or to the pockets of the businessmen.

From the very beginning, the business community showed opposition to the proposed VAT measure stating that mid-level and small retailers will have to be given time to get used to the new VAT system prior to its implementation, and consumers of goods and users of services will have Coping With the Withdrawal After the new VAT rules were put on hold for two years, the only option remaining is to downsize the budget and the planned expenditures to pay more for goods and services while the businessmen will have to pay two or three times more taxes. At one stage it was also aired that the new VAT rate would be fixed within a 12 percent rate. But what happened eventually has bewildered the budget framers and revenue collectors, though it brought satisfaction to the business community. A highly informed circle disclosed that the nexus between the trading community and the politicians worked diligently for undoing the VAT move and they obtained support of the lower middle and middle class people as they were also heavily shaken by the proposal made in the budget for enhancing excise duty on their bank deposits. However, at the time of approving the budget in parliament, proposed excise duty on the bank deposit up to BDT100,000 was waived. For this action the government would have to forego a small amount of tax revenue, not exceeding BDT7 billion, but it has provided great relief to the small accountholders amongst the lower and middle classes.

The budget approved for the current year by parliament is huge in size – BDT4.00266 trillion. Likewise, expenditures for development and non-development areas are also huge. The revenue target for the period is also unthinkably high in the overall social context of the country. The NBR would have to mobilize resources to the tune of BDT2.4819 trillion from different heads that also include VAT. The new VAT law could have provided an estimated amount of around BDT200 billion. But this amount would not come as the execution of new VAT law from July 1 has been held up for two years. So, the revenue collecting machinery and thus the government would have to look for other avenues to make up for the lost revenue. The task is uphill and nearly impossible, to say it plainly. So, the only option remaining with the government is to downsize the budget and the planned expenditures, thus pruning down the number of projects in the annual development program involving BDT1.53331 trillion and other development expenditures.

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