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Unpredictable tax system making exports less competitive

PM's adviser says, terms VAT structure complex

Star Business Report
Unpredictable tax measures and a lack of knowledge on taxation are making Bangladeshi exporters less competitive in the global market, said Mashiur Rahman, economic affairs adviser to the prime minister.
"Unless the tax rate system is rationalised and dispersion of the rates is not reduced, it will continue to create unreasonable protection for domestic industries," Rahman said at the regular luncheon meeting of the Foreign Investors' Chamber of Commerce and Industry (FICCI) at The Westin hotel in Dhaka.
The multiple rates in the taxation system are unfavourable for entrepreneurs, Rahman said. "Uniformity in rate is the basic principle of VAT."
Bangladesh has four different rates of VAT: 15, 10, 7.5, and 5 and there is also a special rate of 3 percent. Only in 2-3 African countries would one find that many VAT rates, he said.
"We have a very complex VAT structure. Unless it is reformed, VAT will remain a contested tax."
The tax regime also needs to be predictable.
"Unpredictable and annual revision of rates destabilise the investment programme
of any investor."
Rahman went on to cite an example of a ceramic exporter who imported raw materials from China.
The customs officials at the Chittagong port could not release the goods on time as such items were not specified in the taxation system. As a result, he lost his buyers, the adviser said.
Another problem is that the importers, especially those who import intermediate goods, have to submit more than 2 percent bank guarantee, which also raises the cost of production and leads to erosion in competitiveness.
Delays in getting the clearance certification also hold up industrialisation.
For instance, 30 companies are still waiting for the clearance from the environment department to set up factories at the Rampal economic zone, Rahman said.
Moreover, the public-private partnership model has not been able to attract as much investment as the country needs, he said.
The adviser said Bangladesh lacks skilled people.
"We have about 30 percent of the working age population not in employment, education or training. Their production contribution is not available in the economy as they do not have skills."
As of now, there is no effective programme to make them skilled and employed, he said.
He said the advantage of demographic dividend of the population will be over soon.
"We will have a larger number of older age population soon," he said.
Shehzad Munim, F1CCI president, also urged the government for a predictable taxation system and long-term continuity of policies.