From Differential to Uniform Rate System: The Political Economy of Reforming Value Added Tax in Bangladesh

Author: Jamaluddin Ahmed PhD FCA Chairman, Emerging Credit Rating Limited

General Secretary, Bangladesh Economic Association President (2010), The Institute of Chartered Accountants of Bangladesh

National Seminar

The Institute of Chartered Accountants of Bangladesh

Dhaka: 7th March 2016

Objectives of the paper

First Update knowledge on the economic rationale of the Value Added and the reforms taken place in the developed and developing countries.

Second Roles of the different professional groups like lawyers, academic and policy economists, professional accountants, economic bureaucrats, and the politicians in the implementation and reforming of Value Added Tax

Third Structural Evaluation of Bangladesh VAT law 1991 and proposed 2012 in terms of International good practice, Revenue Raiser, User friendliness, Differential and Uniform application of VAT Rates

.

Design and Structure of the Paper

A total 8 section presentation comprises

One Defines the Features of Value Added Tax.

Documents professional views, reasons for popularity specifies rate effects efficiency and increase

complexity and analyze reasons for popularity of Value Added Tax, specifies how differential rate affects

efficiency and increase complexity

Two

Three Details the OECD support on broad base single rate VAT since 1980.

Four Presents the political economy of uniform tariff

Five Details on the Challenges of Value Added Tax in the Developing Countries

Six Makes evaluation of Bangladesh VAT Act 1991 and 2012 interms of success and failures in

comparison to international practice.

Seven Present the rationale of introducing uniform value added tax in Bangladesh

Present summary and recommendations of the paper Eight

Baskets of Goods

Tax Base

Exemptions

Rates

Consumption Patterns

Level of Income/ Expenditure

Distribution of

Income

Government Financing: VAT

as a % of tax revenue

Social and Employment Effects of changes in Rates of Value Addition Tax

Adopted: The social consequences of changes in VAT Final report (1998) On behalf of Directorate General for Research of the European Parliament Department Market Strategy and Industry

Analysis Rotterdam, April 1998

France is first country to introduce VAT (1954) So far 141 countries have adopted VAT. Reflects increasingly indirect taxations are getting popular globally

Adoption of VAT by 10 years interval since 1954

1954-1960 1961-1970 1971-1980 1981-1990 1991-2000 2001-2010 2011-2014

Countries

2 9 13 22 67 25 3

Comments Period

Global Scenario on Introducing of Value Added Tax System 1954-1960 1961-1970 1971-1980 1981-1990 1991-2000 2001-2010 2011-2014

France (1954) Monaco (1954) Total: 2

Brazil (1964) Honduras (1964) Germany (1968) Denmark (1967) Luxembourg (1969) Sweden (1969) Ivory Coast (1969) Netherlands (1970) Norway (1970)

9

Belgium (1971) Ireland (1972) UK (1973) Austria (1973) Italy (1973) Isle of Man (1973) Israel (1976) Panama (1976) South Korea (1977) Argentina (1974) Chile (1974) Uruguay (1972) Mexico (1980) 13

Ecuador (1981) Costa Rica (1982) Haiti (1982) Colombia (1983) Turkey (1984) NewZealand (1986) Azores (1986) Maderia (1986) Portugal (1986 Spain (1986) Taiwan (1986) Morocco (1986) Bolivia (1986) Greece (1987) Hungary (1988) Tunisia (1988) Japan (1989) Pakistan (1990) Iceland (1990) Kenya (1990) Nicara gua (1984) Trinidad and Tobago (1990)

22

Bangladesh (1991); Armenia (1993) China (1994); Kazakhstan (1991); Kyrgyztan (1999); Mongolia (1998); Nepal (1997); Turkmenistan (1993); Uzbekistan (1992); Albenia (1995); Azerbaijan (1992); Belarus (1991); Bulgaria (1994); Croatia (1998); Cyprus (1992); Czech Republic (1993); Estonia (1991); Faroe Island (1993); Finland (1994); Georgia (1993); Latvia (1995); Lichtenstein (1995); Lithuania (1994); Macedonia (2000) Malta (1999); Moldova (1998); Poland (1993); Romania (1993); Russia (1991); Slovenia (1999); Switzerland (1995); Ukraine (1992); Australia (2000); Fiji (1992); Vanuatu (1998); Algeria (1992); Benin (1991); Burkina Faso (1993); Burundi (2009); Cameroon (1999); Egypt (1991); Gabon (1995); Ghana (1998); Guinea (1996); Madagascar (1994); Mali (1991); Mauritania (1995); Mauritius (1998); Namibia (2000); Niger (1994); Nigeria (1993); South Africa (1991);Sudan (2000); Tanzania (1998); Togo (1995); Uganda (1996): Zambia (1995); Paraguay (1992); Peru (1991); Venezuela (1993); Barbados (1997); Belize (2006); Canada (1991); Dominican Republic (1992); El-Salvador (1992); Guatemala (1992); Jamaica (1991);

67

Serbia (2004) Slovak Republic (1993) Niue (2009); Samoa (1994) Tonga (2005); Botswana (2002); Cape Verde (2004) Central African Republic (2001) Chad (2000); Ethiopia (2003) Equatorial Guinea (2004) Guinea-Bissau (2001); Lesotho (2003); Malawi (2002) Mozambique (2008) Rwanda (2001); Senegal (2001); Sierra Leone (2009); Zimbabwe (2004); Guyana (2007); Antigua and Barbuda (2007); Commonwealth Dominica (2006) Grenada (2010); Saint Kitts and Nevis (2010); Saint Vincent and the Grenadines (2007) 25

Dem Republic of Congo (2012) Gambia (2013) Seychelles (2012) 3

Country Low-Income Countries

Bangladesh Ethiopia Maldives India Bhutan Pakistan Nepal Sri Lanka

Middle-Income countries Philippines Indonesia Thailand El Salvador

Year

(2014) (1995)

(1997 p.) (1997 p.)

(1997) (1995) (1998)

(1997 p.)

(1997) (1996 p.) (1997 p.)

(1997)

Domestic Indirect Tax Revenue as % of Total Revenue

29.28 21.26 30.20 36.04 36.79 46.74 47.55 61.65

32.36 34.13 47.42 57.42

Domestic indirect tax revenue as percentage of total tax revenue

p. = provisional. Source: Government Finance Statistics Yearbook 1998, International Monetary Fund (IMF), Washington, D.C.

Regional Average of Value Added Tax Rate: Update as of January 2014

Region ASEAN Asia Europe Oceanea Africa South America Caribbean, Central & North America Total

Countries Number of Countries 7 19 53 7 44 11 19 160

Highest Rate 12% (Philippines)

20% (Tajikstan) 25% (Iceland) 15% (Fiji, NZ) 40% (Gambia) 22% (Uruguay) 17.5% (Barbados)

Lowest Rate 7% (Thai, Sing)

5% (Japan) 5% (Jersy) 5% (Niue) 5% (Nigeria) 10% (Brazil) 5% (Canada)

Regional Average Rate 9.43% 12.82% 19.69% 12.57% 16.79% 15.36% 13.34%

Source: http://gst.cutoms.gov.my/en/gst/Pages/gst_ci.aspx

Country Bangladesh China India Iran Japan Jordan Kazakhstan Kyrgyzstan Lebanon Mongolia Nepal Pakistan Papua New Guinea South Korea Sri Lanka Taiwan Tajikistan Turkmenistan Uzbekistan

GDP Per Capita (WB, 2011, USD) 743 5,445 1,509 NA 45,903 4,666 11,357 1,124 9,413 3,129 619 1,189 1,845 22,424 2,835 NA 935 5,497 1,546

Year of Implementation 1991 1994 2005 2008 1989 2001 1991 1999 2002 1998 1997 1990 2004 1977 2002 1986 2007 1993 1992

Current Rate (%) 15.0 17.0 12.5 5.0 5.0 16.0 12.0 20.0 10.0 10.0 13.0 16.0 10.0 10.0 12.0 5.0 20.0 15.0 20.0

Asian Nations VAT Implementation Status 2011

Country Indonesia Thailand Singapore Philippines Cambodia Vietnam Laos

GDP Per Capita (WB, 2011, USD) 3,495 4,972 46,241 2,370 897 1,407 1,320

Year of Implementation 1984 1992 1993 1998 1999 1999 2009

Initial Rate (%) 10 7 3 10 10 10 10

Current Rate (%) 10 7 7 12 10 10 10

ASEAN Countries VAT Implementation status 2011

Principles of Value Added Tax Equity and Fairness

Similarly situated taxpayers treated similarly. VAT is generally regarded as a regressive tax. Under this proposal, a broad-based single-rate VAT that applies to all goods and services, without any compensating measures is the most regressive form of VAT

Certainty The tax rules should clearly specify when the tax is to be paid, how it is to be paid, and how the amount to be paid is to be determined.

Convenience of Payment

A tax should be due at a time or in a manner that is most likely to be convenient for the taxpayer. The excess VAT collected at the end of the reporting period is remitted to the tax authority. Again, this process does not differ from the existing procedure with the income tax.

The costs to collect a tax should be kept to a minimum for both the government and taxpayers.

Economy in Collection

The tax law should be simple so that taxpayers can understand the rules and comply with them correctly and in a cost efficient manner.

Simplicity

The effect of the tax law on a taxpayer’s decisions as to how to carry out a particular transaction or whether to engage in a transaction should be kept to a minimum.

Neutrality

The tax system should not impede or reduce the productive capacity of the economy. Some analysts point to several negative effects on the broader US economy upon implementation of a VAT

Economic Growth and Efficiency

Transparency and Visibility

Taxpayers should know that a tax exists and how and when it is imposed upon them and others

Minimum Tax Gap

A tax should be structured to minimize noncompliance

Appropriate Government Revenues

The tax system should enable the government to determine how much tax revenue will likely be collected and when.

Caution! A broad-based single rate VAT meets six principles of good tax policy. However, it did not fully meet the requirements for equity, simplicity, economy in collection and minimum tax gap. The timing for implementation of a VAT (if considered) is crucial. Introducing a VAT in a fragile economic environment could cause unintended consequences beyond those examined in the Principles of Good Tax Policy framework.

Literature Review on Value Added Tax Acosta, (2011) In the case of the typical VAT these standard results can be augmented by efficiency gains from

a harmonization of VAT rates that would remove distortionary subsidies, although concern is often expressed about the potentially regressive effects of such measures

Fiscal regime with significant reliance on consumption based taxation, which results in more saving and investment and a higher growth rate than under a tax regime more heavily weighted toward income taxation.

Nellor (1987) Whether or not ratio of government revenue to GDP rises systematically after implementation of VAT in 11 European countries

According to Nellor, implementation of the VAT instantly increased tax ratio, which then continues growing at the higher level.

Agha and Haughton (1996)

Across-country analysis, analyzing a sample of 17 OECD countries for determinants of VAT fulfillment

A higher VAT rate is related with lower compliance, and this tradeoff limits revenue-maximizing VAT rate to below 25% also compliance is considerably lower with multiple VAT rates. An extra dollar spent on administration lift up revenue by $12, and longer experience with managing a VAT also raises compliance.

Keen and Mintz (2004)

Focused on central trade-offs to be faced in selecting threshold for a VAT

Among the desires to boost tax revenue, shrink administration and compliance costs, and reduce the distortions arising from the discrepancy treatment of firms above and below threshold. One frequent advantage apparent in the value-added tax is vision of its yielding information helpful for enforcement of the income tax.

Assess political economy and structural factors describing collection efficiency of Value Added Tax [VAT].

Aizenman and Jinjarak (2005)

A one standard deviation rise in fluidity of political participation and durability of political regime, increase VAT collection efficiency by 3.6% and 3.1%, respectively. A one standard deviation increase in trade openness, urbanization, and share of agriculture changes VAT collection efficiency by 3.9%, 12.7% and 4.8%, respectively. Additionally, a one standard deviation rise in GDP/Capita increases the tax efficiency by 8.1%.

Sujjapongse (2005)

Roadmap for Tax Reform that would sketch the framework for future trend of taxation in Thailand

Results reveal that ratio of tax revenue to GDP for Thailand is still quite low even with the legislative tax rates that are generally no less than other countries. To promote greater equity tax structure should be reformed.

Observed the impact of domestic tax system on trade balance in OEDC countries. Using an unbalance panel of 27 OECD member countries for 1967-2003

Keen and Syed (2006)

First, VAT itself shows no impact, in both short and long run. Second is that alteration in corporate tax having dominant dynamic effects, of a kind steady with it being basically source-based tax.

Considers three of the most famous series of attacks on VAT.

Keen (2007) One is fear that VAT essentially does too good a job of increasing tax revenue. Second is the vision that VAT does a bad job of taxing informal sector and that for developing countries tariff might be a more suitable revenue-raising instrument. Third attack is the most factual, by criminals rather than theorists: sophisticated VAT fraud, aiming its refund provisions, has become a serious concern in European Union and elsewhere. Keen concluded that VAT is in fact simply a uniform tax on final consumption, toward which all our simple textbook models in principle are valid.

They explore what has shaped its adoption and whether it has proved an effective form of taxation. Their findings show that in the beginning a tax innovation, such as introduction of a VAT, decreases marginal cost of public funds only if it also directs an optimizing government to raise tax ratio.

Keen and Lockwood (2009)

Explores causes and consequences of significant rise of value added tax (VAT). 143 countries for 25 years, describing both the probability of adoption of VAT and revenue impact of the VAT

Studied the effect of adopting value-added tax (VAT) in developing countries on stabilization of tax revenues. Using a panel of 103 developing countries they observed over 1980-2008 and some alternative estimation methods in order to handle the self-selection bias and endogeneity issue of VAT adoption.

Ebeke and Ehrhart (2011)

Focuses on two basic tax design issues that come up in addressing current fiscal challenges. “fiscal devaluation” changing from social contributions to value added tax as a way to take off a nominal devaluation. Review wider scale for VAT reform in meeting fiscal consolidation requirements

Mooij and Keen (2012)

Presence of VAT leads to notably lower tax revenue instability. Generally, countries with a value added tax, experience tax revenue instability forty to fifty percent lower than the countries which do not have a VAT system.

Efficiency gains, redistributive impact or tax revenue implications as the dynamic analysis mostly rely on the dynamic impact on the rate of growth.

Cnossen (2011)

Professional Lawyers, Economists and Accountants role in VAT implementation

Emphasized the role Professional Lawyers, Economists and Accountants role in VAT implementation

Literature Review on Value Added Tax

Political Economy of Growth Research shows a one standard deviation rise in fluidity of political participation and durability of political regime, increase VAT collection efficiency by 3.6% and 3.1%, respectively.

A one standard deviation increase changes VAT collection efficiency by in trade openness (3.9%), urbanization (12.7%), and share of agriculture (4.8%), respectively

A one standard deviation rise in GDP/Capita increases the tax efficiency by 8.1%.

One is fear that VAT essentially does too good a job of increasing tax revenue.

Second is the vision that VAT does a bad job of taxing informal sector and that for developing countries tariff might be a more suitable revenue-raising instrument.

Third attack is the most factual, by criminals rather than theorists: sophisticated VAT fraud, aiming its refund provisions, has become a serious concern in European Union and elsewhere.

Keen concluded that VAT is in fact simply a uniform tax on final consumption, toward which all our simple textbook models in principle are valid. Ebeke and Ehrhart (2011) research revealed generally, countries with a value added tax, experience tax revenue instability forty to fifty percent lower than the countries which do not have a VAT system.

Keen (2007) considers three of the most famous series of attacks on VAT.

Mobilizing electoral support The strength of political parties and coalitions in the legislature Elite control of tax policymaking or tax administration; The degree of popular acceptance of tax policy; Political survival that depends on a winning coalition of

supporters. Democracy and Bureaucracy Fiscal Bureaucracy with Economic knowledge. Institutionalization of economic knowledge within the state. Digitalization of VAT The political economy approach allows for a lens of analysis that is broader than that traditionally deployed by strictly economic and technical approaches

Political Economy Approach on tax reform

In addition to domestic and international pressure, government approaches to tax policy have been in large part shaped by the following political elements:

Why has the VAT been so popular

VAT raises revenue in a neutral and transparent manner (Stéphane Buydens, 2006).

VAT is the most effective instrument for generating government revenue (Delfin, 2005). ‘The marginal cost of raising funds for public purposes through VAT is generally lower than it would be if other taxes were employed (Richard M. Bird, 2008)

In former communist economies, key considerations were the need to replace levies on state enterprises and anticipating membership of the EU (Norregaard and Tehmina S. Kahn, 2007). The tax relies on a staged collection mechanism in which successive taxpayers are entitled to deduct input tax on purchases and have to account for output tax on sales. In the end, the tax collected by tax authorities should equal the VAT paid by the final consumer to the last vendor.

VAT’s neutrality toward international trade has also made it the preferred alternative to custom duties in the context of trade liberalization (and decline in revenues due to the dismantling of trade barriers, (Stéphane Buydens, 2006). Economists generally take the view that VAT encourages savings and investments because it is a tax on consumption and not income Recent OECD work suggests that VAT is more pro-growth than an income or corporate tax (Johansson et al 2008). It is argued that this is a particularly efficient tax because revenue is secured while collected throughout the chain of production, unlike a retail sales tax, under which all tax is lost if there is evasion at the final stage. More importantly, cost of collecting VAT is cheaper than other taxes. Since the corresponding input tax on exports is deductible, VAT does not affect the competitiveness of domestic firms to export. Further, VAT is relatively secure from serious fraud in a domestic market.

Why has the VAT been so popular

How multiple VAT rates affect the efficiency increase complexity

VAT based on the French and then European model, many of which are members of the EU, generally applies several reduced rates so that the tax basis subject to standard rate is somewhat limited

Group of countries (including Australia, Canada, Korea, New Zealand, Singapore, and South Africa) has a much broader base at the standard rate. The 1986 New Zealand VAT reform introduced a broad-base VAT with a low single standard rate, a low registration threshold, and few exceptions and exemptions. New Zealand scores the highest on the OECD VAT revenue ratio. South Africa implemented a VAT in 1991 that broadly follows the New Zealand model. (Go, Kearney, Robinson, and Thierfelder, 2005) with relatively high VAT registration threshold to simplify the system by excluding small firms. Singapore, which introduced VAT in 1994, also has a broad base with a high threshold and a single rate. Australia introduced the GST in 2000.

French Model Different than French VAT Model

Multiple VAT rates will affect the efficiency of a VAT system and will increase complexity, Increase administrative and compliance costs.

Economists view that OECD reports since the 1980s have clearly supported the view that, other things being equal, a broad base, single rate VAT is ideal (Hagemann et al, 1987).

Copenhagen Economics study (European Union, 2007) and the 2008 draft chapter of the Mirrlees Review of UK taxes (Mirrlees, 2008) supported the view that a broad base with a single standard rate would enable significant revenues to be used while decreasing tax administration costs for governments and compliance costs for businesses. This is generally supported by the view that VAT is not an appropriate tool for manipulating social behaviors.

More support for broad based single rate VAT

This view is supported by recent studies.

Regressiveness is hard to define unambiguously It is impossible precisely to define the extent of the regressiveness, Empirical research about the regressiveness of VAT largely bears out the thesis that it cannot be used to reduce differences, Introduction of several rates requires a detailed definition of taxable products, Unclear definition of products opens up the door to tax evasion, Increasing the number of rates will lead to an increase in the administrative costs of collecting the tax, Lower VAT rates are no guarantee of lower prices, Various rates of VAT distort consumer preferences, Lower rates of VAT mean less revenue to the national budget, The EU is tending towards a smaller number of rates of VAT Source: Marina Kesner-Skreb (1999) study on Coatia identified Ten Reasons in favor of Uniform Rate of VAT.

Reasons in favor of Uniform Rate of VAT

In line with International Practice Scope and network Practice of Market Value as tax base Price declaration in Supply of taxable goods and approval Adjustment of exemption VAT is now new name of Excise Current Self assessment and payment functions: Crafting of Current VAT law and rule do not comply International best practice Registration process is not in congruent ideal VAT system More of compromise lead rate fixation

Bangladesh: Evaluation of 1991 Value Added Tax Law

Institutional capacity problems: Tax type rather than functional nature VAT system is manually run Sleeping or no-existence registration: Priority of personal interest over Institution Absence of Co-ordination between VAT, import duty, & tax department Mutual accountability Monitoring, evaluation and performance Culture of delayed voluntary compliance Tax Gap

Value Added Tax and Supplementary Duty Act 2012

Broader coverage VAT is not applied for certain good and services Existing price declaration VAT registration thresholds have been changed Truncated value base will be discontinued No existence of Provision for ‘Package VAT No time limit for discount sale New VAT and SD Act will bring the automated VAT challan Provides a broader scope to use up input tax credits No Account Current Register under the new Withholding VAT is applicable New VAT and SD Act will apply standard calculation method.

New Act allows the tax to be remitted to Government when the return is due

Five years document preservation mandatory VAT refund system has been simplified

NBR will be vested with additional powers to make company directors holding liable to recover tax arrears.

Alternative Dispute Resolution (ADR) committee

Financial and Institutional impacts of the Structural Changes

New structure SD Almost 91.8% of all tariff lines will be associated with zero (0) SD rate, compared with 79.2% under the current SD 12 percentage points increase in tariff lines under the zero (0) SD rate or exemption category Proposed system only 1.5 % of all tariff lines would be subject to SD rates ranging between 20% and 60%. Reduction in the tariff lines (i.e. to 30%) would be noted for the higher SD rates ranging between 100% and 500%

New Structure VAT VAT reform involving reduction of list of exempt items and abolition of the reduced 10% VAT rate Tariff lines associated with exempted items will reduce to 19.2% compared to 23.9% under the current system Suggesting 4.7 percentage point reduction in tariff lines currently enjoying VAT exemption. Tariff lines associated with 15% basic VAT rate would increase to 74.4% from 69.7% implying 4.8 percentage point increase in tariff lines under the 15% rate. Increase in tariff line of 4.8% thus fully compensates for the loss due to reduction of exemption items and the abolition of the 10% rate.

ATV New Structure Tariff lines associated with zero percent rate or exempted from ATV will decline to 17.9% compared to 18.5% under the current system suggesting only 0.5 percentage point decline in the number of tariff lines currently enjoying exemption. Number of tariff lines subject to 4% ATV rate would increase to 75.6% from 75.1% implying 0.5 percentage point increase in tariff lines under the 4% rate.

Under Current SD system 88.9% imports are imported with zero (0) SD rate. More than 4% of total imports are subject to SD at rates between 10% and 60%. Only 0.11% of all imports are subject to SD at high rates i.e. 100% to 500% SD rates. Special imports account for 6.9% of all imports. Shifts under the proposed 9-slab SD rate structure. Imports exempted from SD will increase to 91.1% under the new system implying a more than 2 percentage point increase in imports exempted from SD Share of imports exempted from VAT will decline from the current level of 49.7% to 27.3% imports subject to the basic 15% VAT rate will jump from 35% under the current system to about 66% under the proposed system. With the new system in place, the share of exempted ATV imports will decline from 39.0% to 29.0% suggesting a more than 10 percentage point reduction in import value which is currently exempt from ATV.

Structural Shift in Imports

Revenue impact on SD Reducing SD rates from 13 to 9 Estimated revenue loss at the import stage will be around 40% from the current level Revenue collected from SD was estimated at Tk. 41.7 billion for FYI4. However, with the proposed reform, the SD revenue would decline to Tk. 24.8 billion for the same year implying a revenue loss of around 40%.

Primarily have a negative impact by this reform due to withdrawal of exemptions on a range of products.

No impact from the VAT rate since the basic V AT rate remains unchanged at 15%.

Expected large revenue gains may result from the basic VAT system primarily as a result of exemption withdrawal.

Initial simplistic estimates would lead to a conclusion that more than 60 percent revenue gains may result from the withdrawal of exemptions based on the Exemption Schedule which is part of the new VAT Law.

Impact on VAT Revenue

Total amount was estimated to be TK. 226.6 billion from these three sources 1f' the new reforms are adopted without further considerations as noted above (an unlikely outcome), the overall revenue would increase to Tk. 299.9 billion registering almost 32% increase over the current system Overall import revenue would still be 4.0% higher than the current system. Total import revenue for FYI4 has been reported to be Tk. 331 billion Revenue gain (i.e. TK.7. billion) under full reform has been estimated be to 21.9 (10%) of the current total import Under the adjusted reform, the revenue gain (i.e. TK. 12 billion) has been found be to only 2.7% of the current total import revenue

Overall Revenue Impact of All Changes Import Stage

Summary of the Paper

German businessman Wilhelm Von Siemens is recognized coming up with the idea of VAT in the 1920s (Ebril, et al 2001) as a form of indirect tax. VAT was first implemented in France (1954) followed by the former colonies VAT is considered as the most important tax innovation of the second half of the twentieth century (Goode, 1984): Speed with which the VAT system has spread around the world is unmatched by any other tax in modern times. Principles of VAT includes: Equity and Fairness; Certainty ; Convenience of Payment; Economy in Collection; Simplicity ; Neutrality; Economic Growth and Efficiency; Transparency and Visibility ; Minimum Tax Gap; Appropriate Government Revenues; Available information suggest 141 countries adopted VAT VAT has higher share in total revenue & higher contribution to GDP Regressiveness of VAT is recognized by almost all professionals

Uniform VAT Rate is most favored Rate Research shows one standard deviation rise in fluidity of political participation and durability of political regime, increase VAT collection efficiency by 3.6% and 3.1% respectively (Keen (2007). One standard deviation increase in trade openness, urbanization, and share of agriculture change, VAT collection efficiency increases by 3.9%, 12.7% and 4.8%, respectively. One standard deviation rise in GDP/Capita increases the tax efficiency by 8.1% (Keen (2007)

Summary of the Paper

Recommendations

Awareness campaign on comparative advantage new law Calculate a quantitative revenue projection based on rate, economic sector, and target of VAT net Rate of VAT range between 10-12% Digitalization of VAT and Training of officers & payers Extensive training for collectors and payers of VAT Fiscal Bureaucracy matching with economic knowledge Economic impact of withdrawal of Supplementary Duty Establish Rewards and Punishment culture Quantify Annual Performance Goals at all tiers Substantial increase in coordination Form an Independent Revenue Commission with cross professionals to suggest the GoB & NBR

Enormous thanks to Mr Kamrul Abedin FCA, President ICAB and Council members of ICAB Mr Nojibur Rahman Chief Guest & the Chairman National Board of Revenue Barrister Jahangir Hossain, Member VAT & Special Guest of the program Mr Humayun Kabir FCA, Past President & Chairman Taxation Committee All valued participants Print and electronic media friends ICAB executives and staff members