Bangladesh Set to Move Ahead With Flat VAT Rate in 2016

The International Monetary Fund (IMF) has lent its full support to Bangladesh’s new system of value-added tax (VAT). Following an IMF mission led by Rodrigo Cubero to the country, the IMF said that the tax will help boost revenue and reduce compliance costs for businesses.

The IMF’s remarks arrive on the back of fresh concern from Bangladesh’s business community over the impact the new VAT will have on business operations. The new system will now introduce a single, uniform VAT rate of 15 percent instead of multiple rates – an outcome that has been strongly opposed for some time.

The fear from Bangladesh’s business community is that the flat VAT rate will be suitable for large, wealthy corporations, but may be harmful for small and medium enterprises (SMEs). A non-uniform VAT is widely seen as a fairer all-round system.

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In January, the Federation of Bangladesh Chambers of Commerce and Industries (FBCCI) supported a report that advocated numerous rates, and on March 11, FBCCI President Kazi Akram released a statement in which he called for the government to reject a flat rate. “We hope that the government will address the differences regarding the VAT law in the coming two budgets”, Akram said, adding that Finance Minister AMA Muhith had reassured him that businesses’ concerns would be addressed. “We are hopeful that our demands will be accommodated”, he said.

However, following the IMF’s visit, it now seems that Muhith is set on the single VAT rate, with local media reports stating that he has “changed his mind” over possibly implementing multiple rates.  The IMF’s public display of support for a uniform tax may therefore be interpreted as an attempt to alleviate business apprehension over the new VAT.

Bangladesh’s VAT Act was formally passed in 2012 to replace the country’s existing VAT system from 1991. Originally slated to come into effect in July this year, disagreements over how the tax should be structured meant that implementation was delayed. The single VAT rate is now fixed to be introduced in July 2016.

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