The International Monetary Fund (IMF) has recommended imposing a flat 15 per cent of value addition tax (VAT) on companies with an annual turnover of more than Tk 30 million across all sectors, as well as lifting the tax rebate facilities at various rates from garments, shoes, liquefied petroleum gas (LPG), mobile phones, entertainment and foods. The lending agency even proposed imposing VAT on remittance.
A team of IMF led by Chris Papageorgiou, Chief of the Development Macroeconomics Division at IMF’s Research Department, placed these recommendations during a meeting with senior officials of the VAT and Income Tax Department of the National Board of Revenue (NBR) in Agargaon, Dhaka on Sunday, according to reliable sources.
The sources said the NBR officials also placed their onions to the IMF delegation saying steps must be taken based on reality. Not all tax rebates can be lifted at once. Likewise, tax can be imposed in all sectors at once either. However, the government is actively working to increase revenue.
The IMF recommended overhauling VAT, income and customs departments. Previously, the lending agency set deadlines to lift tax rebates from various sectors. So, the IMF delegation inquired about what possible measures the government of Bangladesh is going to take to this end. The IMF has also set a condition on collecting additional tax and duties equal to 5 per cent of gross domestic product (GDP) in the next fiscal.
IMF approved a loan of USD 4.70 billion for Bangladesh at the beginning of 2023 and will release the fund in seven tranches in three and a half years until 2026. The lending agency has released two tranches so far, and the IMF mission is visiting Dhaka now to review the economy of Bangladesh before releasing the third tranche of the loan.
No tax rebate in IT
A total of 27 information technology (IT) services have been enjoying tax rebates for over a decade, and now the IMF recommended lifting this facility. As the tax rebate expires on 30 June this year, the IMF at the meeting with NRB suggested not renewing the facility. The NBE officials, however, said lifting all tax rebates at once is not possible, and it will be done through due process. The NBR is reviewing the matter.
Tax rebate in industries
Previously, the IMF recommended lifting the tax rebate facilities for 33 industries. At Sunday’s meeting, the IMF reiterated that the tax rebate facilities on production sectors are to be lifted in June 2025 and the facility should not be renewed. The lending agency advised the lifting of all kinds of tax facilities by 30 June 2027.
Additional revenue collection
It was mentioned at the meeting that an additional tax of Tk 153 billion will have to be collected in addition to regular revenue growth as per the IMF’s conditions. The lending agencies wanted to learn from the NRB about what measures are being taken to collect this additional fund. NBR officials said if enforcement of necessary rules can be ensured it will be possible to collect a major portion of the additional fund.
Regarding a flat VAT rate, Ahsan H Mansur, executive director of the Policy Research Institute (PRI), told Prothom Alo the VAT Act 1991 stated about imposing a 15 per cent flat VAT rate, and the VAT Act 2012 also states a 15 per cent VAT rate, but then finance minister changed it in face of pressure from businesses.
VAT should be at 15 per cent in the production sector, but the VAT rate can be reduced for physicians, lawyers, restaurants and several other service sectors because value addition tends to be less in these sectors.