Among the many virtues that have been attributed to the Value Added Tax (VAT), "avoidance of double taxation" is said to be one of the most important advantages. But in actual practice, it Is seen that double, even multiple, taxation does occur under VAT, not In isolated cases, but tn hundreds of thousands of instances all over the country. This is especially evident In the case of Secondary Raw Materials, which are finished products of one industry, but the raw materials for another, whether imported or manufactured in the country, some Instances of which are given below.

One such secondary raw material is Nail Wire, used for making wire nails. A few units in Tejgaon, Dhaka and probably one or two in Chittagong, make this commodity. And there are numerous wire-nail making units all over the country. But the hitch is that the nail wire making industries do not sell in small quantities — only by the truck-load or multiples of five tons. That is all right for the very few large industries manufacturing wire nails, but the small units — hundreds of them — cannot afford to buy more than one or two, or even half a ton, at a time. They have to depend on the wholesalers at MouM Bazar in Dhaka, whose stocks do not come under the purview of VAT, as a result of which the unit cost of wire nails made by the smaller units is enhanced because of the double Incidence of VAT, because they do not get the credit for the VAT paid by the nail wire manufacturer.

Similar Is the case of Paraffin Wax which is used tn candle-making a* well as in packaging. While there may be one or two large candle factories, there are also hundreds of small units in almost all parts of Bangladesh. Similarly, packaging industries, especially those which manufacture cartons for the 100% export-oriented Shrimp Freezing Plants, need paraffin to wax the carton surface* to protect them from soaking. But paraffin wax is not manufactured in the country, and it cannot be imported tn five or 10 ton lots, let alone one or two tons. A* * result. It has become ■ commercial commodity, imported by big parties in Chittagong in 100-ton lots, and distributed and re-distrfbuted till ft reaches the wholesalers of Moulvi Bazar, from whom the actual users obtain their re ^tjuirements. In this case also,

the final users do not gel any credit for the VAT already paid by the importer, though their products using the VAT-imposed paraffin are again assessed for VAT. Another imported product used in the manufacture of Corrugated Multi-ply Master Cartons is Imported glue. As a result of this, the cost of packaging materials for shrimps is enhanced, which is reflected In the export price, which in turn makes Bangladeshi shrimps less competitive in the international market.

From the above it is evident that, while the large industries which either Import or buy directly from the manufacturer their requirements of secondary or tertiary raw materials get exemption for VAT paid at the initial stage, and smaller units which number hundreds or even thousands are deprived of this advantage. As a result, the unit cost of the products of smaller units tend to become higher than that of larger industries. Thus the rich become richer while the smaller units are forced to close down.

Another advantage claimed for VAT Is that Its imposition will not enhance the cost of manufactured articles, because, it is claimed, that VAT only replaces Sales Tax and Excise Duty. But some simple statistics prove that this claim too is a mere fallacy.

Suppose an imported commodity has to undergo three different manufacturing processes In three different factories. At the import stage, the commodity is charged VAT © 15%, that is to say Tk, 15.00 for the commodity worth Taka 100.00. The first processor uses it to produce a commodity, the unit cost of which comes to Taka 200.00, for which VAT is cltarged at Taka 30.00. The second stage manufacturer enhances its value to Taka 400.00 for which the amount of VAT charged is Taka 60.00. Then the final processor makes the finished product valued at Taka 800.00 for which VAT comes to Tk. 120.00.

Although at each stage the processor gets exemption for the amount paid as VAT by his immediate predecessor, the consumer is charged an incredible Taka 120.00 as VAT for an article produced from raw material costing only Taka 100.00. The rale of taxation thus stands at 120%.

Il is true that Excise used to be charged on industrial products before the Introduc-

tion of VAT. But the reality is that out of some three thou sand articles manufactured in the country, only about a hundred or so had to pay Excise Duty, and that too, never at as high a rate as 120%. But now VAT is payable on all the 3000 products.

None of the Instances mentioned above arc Irhaginary or hypothetical; there are hundreds of Instances of such things happening. As such, a thorough survey of the effects of VAT thus becomes imperative, and means to eradicate double or multiple taxation and other harmful effects of VAT have to be evolved.

Eradicalion of double or multiple taxation is easy enough. If a chain of VAT payers is established, such as (a) importer-bulk trader -wholc-salcr-uscr Industry, or (b) primary processor-secondary processor-tertiary proccssor-final processor, etc without any break in the links, incidence of double or multiple taxation can be avoided. If all industrial users of such products arc provided with proof that VAT has been paid for the product In question —such as compulsory issuance of VAT Certificates or copies of VAT-pald Bills of Entry by all the links in the chain, this can be achieved.

But not being an economist or taxation expert, 1 am not in a position lo understand or recommend ways of avoiding lax escalation as illuslralcd In the case of multiple processing above. That is a mailer for the experts lo soil out.

Unless, therefore, intelligent steps are taken urgently to eradicate the evil cficcla of the hasly imposition of VAT, thousands of small industrial units arc likely lo close down, resulting in an unprecedented scale of unemployment. Also a large number of potential entrepreneurs, encouraged by the recently achieved political stability, will be discouraged of investing, thus dashing all hopes for the rapid industrialisation of the country.

It is therefore requested that the procedural inadequacies in the VAT administration be reviewed thoroughly, and necessary reforms undertaken as urgently as possible, so that VAT instead of being considered a curse, may become. In the minds of all concerned, the really progressive taxation policy that It Is.

Anwar Firoze. Ideal Chemical A Printing Works Ltd. Khulna 9100^