The government has withdrawn its proposal to introduce a fixed-rate value-added tax (VAT), or "package VAT", for small businesses following strong opposition from retailers and concerns over its impact on the small and medium enterprise (SME) sector.
It has also decided to withdraw some proposed tax hikes in the tobacco sector. The supplementary duty on imported nicotine pouches is likely to remain at 35 percent, while the proposed tax increase on imported raw materials for conventional cigarettes is also being dropped.
At present, retail businesses with an annual turnover of Tk 50 lakh or more must register for VAT. Businesses below this threshold are outside the VAT net. The proposed budget had sought to make VAT registration mandatory for all retail businesses from July 1, regardless of turnover.
The proposal raised concerns among small businesses, which said it would increase operating costs and expose them to harassment by VAT officials.
Government sources said Finance Minister Amir Khosru Mahmud Chowdhury ordered the removal of the relevant provisions before the Finance Bill is passed today.
A senior government official said the proposal could be difficult to implement. There were also concerns that many medium-sized businesses might switch to the package VAT system instead of the regular VAT system.
The package VAT system was introduced to simplify tax payment for small businesses. It was later abolished after the automated VAT system was introduced under the VAT and Supplementary Duty Act, 2012.
The Bangladesh Shop Owners Association demanded that small and micro businesses remain outside the VAT system. At a press conference, the association said bringing small businesses under VAT would lead to unnecessary harassment and create instability in the SME sector.
Its president, Md. Helal Uddin, said most small traders do not have the capacity to collect VAT from consumers.
According to the association, about 775,000 businesses are currently registered for VAT. It said 60 percent of the Tk 142,000 crore VAT collected in the last fiscal year came from only 109 businesses under the Large Taxpayer Unit (LTU).
The association also urged the NBR to speed up VAT automation, increase the number of active taxpayers and strengthen monitoring of large businesses.
Meanwhile, the government is also considering reducing the proposed capital gains tax on landowners from 15 percent to 5 percent.
Bd-pratidin English/ Jisan
