VOL 22 NO 58 REGD NO DA 1589 | Dhaka, Thursday, January 08 2015 http://www.thefinancialexpress-bd.com/2015/01/08/74811
VAT law a tool to fetch revenue, not fleece taxpayers M S Siddiqui The Value-Added Tax (VAT) system was initiated about 25 years back and an updated new VAT law is waiting for its enforcement by July, 2016. VAT is a replacement of sales and excise tax. It was a German businessman, Wilhelm Von Siemens, who, in the 1920s, had first innovated the idea of imposing tax on additional value of output at each stage of its creation, rather than just at the retail sales end. But it was a Frenchman, Maurice LaurĂŠ, a tax official, who was the first to implement it in 1954. VAT is now implemented in over 150 countries, where it accounts on average for as much as a fifth of the total tax revenue. Today, all OECD countries, with the exception of the US, have VAT systems in place. In fact, revenues from VAT represented, on an average, 18.7 per cent of total tax revenues of the OECD countries in 2008, compared to 8.8 per cent in 1975. Many developing countries around the world have introduced VAT in the hope of raising revenues efficiently at the least collection cost. VAT is intended to be a neutral, efficient and buoyant revenue-raising tax. It is effective in terms of raising revenue and is cost-effective to administer compared with other taxes. It is actually collected by businesses at each stage of production and distribution chain. VAT is a secure tax to collect, compared to conventional sales taxes which can be lost if evasion happens right at the final sales stage. It is also an attractive tax from the taxpayers' perspective because of its transparent nature. The consumers know what they pay, and if they don't buy the goods, they don't pay the tax. The revenue gains from VAT are likely to be higher in an economy with higher level of per capita income, lower share of agriculture, and higher level of literacy. It proves to be an efficient tool for revenue collection. Compared to alternatives in indirect taxation, the VAT has more revenue potential. Bangladesh introduced VAT in 1992 with an aim to increase tax collection. The result was very encouraging since VAT and Supplementary Duty (SD) collection doubled its share as percentage of gross domestic product (GDP) within one year from 1.5 per cent in FY1992 to 2.9 per cent in FY 1993. The trend gradually increased over time and in FY2010, it crossed 5 per cent of GDP. VAT and SD contributed about 81.3 per cent in FY2014 and VAT singularly added about 57.9 per cent. During this period, the collection of VAT increased by 10 times. But since 2000, the earnings from direct tax (e.g. income tax, travel tax and others) grew at 21.1 per cent but VAT collection increased by 15.6 per cent. The slowdown in annual increase of VAT collection, compared to direct taxes, has drawn attention of the policymakers. Bangladesh is now in the process to implement revised VAT Act with a hope to increase income from this source.