DCCI is right to say higher VAT will halt business expansion

THE Dhaka Chamber of Commerce and Industry (DCCI) has voiced concern over the government’s proposed 15 percent Value Added Tax (VAT) to be introduced in the upcoming National Budget for 2017-18 from July next and wanted it to be at 7 percent. The government is apparently taking the measure for meeting higher revenue target but as the DCCI fears it is not taking into account its negative impact on the growth of trade and industry. The Chamber Body has rightly argued as a national daily on Sunday reported that such phenomenal rise of VAT rate will increase cost of doing business at all levels pulling back expansion of business activities. It may benefit the government but at the cost of the national economy.

The Chamber Body has also sounded critical on the government proposed move to withdraw supplementary tax on some imported goods because it will severely affect local producers of such goods the duty is protecting. Why Bangladesh government is taking the step at a time when the Indian government has imposed anti-dumping duty on import of jute goods from Bangladesh to protect their domestic jute industry. When they are protecting their industry, why we are going to expose our local industries to cheaper to beat our local manufacturers. We share their observation that the issue needs to be seriously evaluated, since the country’s financial interest is directly involved in it.

We also appreciate proposal by Foreign Chamber of Commerce and Industry (FCCI) as they have called for reducing income tax in phases over the next five years; which now stands between 25 and 45 percent. We believe their proposals make sense when they say widening tax net, instead of phenomenally increasing the rate will help expand new businesses to expand new sources of tax.

At present a mere 0.67 percent of the country’s population of 160 million has been registered with the tax net so far. Not only are a huge number of people deliberately evading taxes, the government also failed to ensure collection of taxes from these regular tax-payers. We expect the government to carefully re-consider whether the VAT hike will help new investment or discourage newer investments in trade and industries.

The Chamber bodies have rightly pointed out that the government should not be guided with the only motive to increase the VAT and other taxes to increase revenue collection. In fact it needs to have a check-and-balance to garner more revenue while the system will also invite more domestic investments. But the new VAT rate will go for making everything expensive from transport cost to utility services and industrial productivity to lose competitiveness. It will be highly inflationary. It can’t bring good to the nation, except helping the government to collect more revenue to spend in activities marred with misuse of fund, corruption and other bad quality expenditure. It is time to rethink as the business bodies have rightly pointed out.