The government could relax the rules on the penalty for VAT fraud and interest on late VAT payments in the next national budget to encourage companies to pay their contributions to the state.
Those found guilty of VAT (Value Added Tax) fraud are currently subject to fines corresponding exactly to the taxes evaded. The amount of this penalty may be reduced by half. On the other hand, the interest payment period could be capped at 24 months or 36 months, the monthly interest rate remaining unchanged at 1%.
The National Board of Revenue (NBR) has come forward with a proposal in this regard, NBR sources involved in preparing the budget proposals told The Business Standard. If the proposal wins final approval, it could be included in the budget for the financial year 2022-23 – which is due to be presented to parliament by the finance minister on June 9, they added.
The sources indicated that at present, the amount of the fine and interest often exceeds the amount of VAT evaded or the amount claimed by the BNR. For this reason, companies accused of evading fines choose to move the court without paying VAT, which has blocked the collection of BNR revenue.
If the amount of interest and penalties is lower, the BNR will have the opportunity to obtain the evaded VAT easily and quickly, BNR officials observed, adding: “Basically, VAT taxpayers who are not real fraudsters but who are in arrears due to lack of knowledge or due to errors will be encouraged to pay the government.”
VAT officials fear, however, that such a move could encourage tax evaders and those who wish to delay payment of government revenue.
In FY21, the penalty rate for any VAT fraud case was 200%. The rate was reduced to 100% last year.
On the other hand, until FY21, a VAT taxpayer would have to pay 2% monthly interest on late VAT payments. The rate was reduced to 1% last year. But the interest amount would increase as the payment term gets longer. In some cases, taxpayers would have to pay large sums of money in the form of fines and interest, other than the amount claimed by the NBR. Therefore, the interest payment period could be reduced in the next budget.
A commissioner at a VAT commissioner in Dhaka told TBS that the department served a notice of VAT claim of Tk 70 crore on a reputable business in the area. The business organization went to court to challenge the notice. There have been 99 hearings in the case so far since the notice was filed seven years ago, but the court has yet to deliver its verdict.
If fines and interest rates are lowered, those who deliberately want to procrastinate in paying VAT might feel encouraged.
Snehasish Barua, a VAT law expert and partner at accounting firm Snehasish Mahmud and Company, told TBS that at one point the penalty rate for VAT fraud was 50%.
“In our budget proposal, we suggested bringing it back to the previous level and also proposed a reduction in the interest payment term.
“If our proposal is taken into account, the number of cases will decrease.”
Mostofa Azad Chowdhury Babu, Senior Vice President of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), said the facility could be granted given the current situation. But if this goes on for a long time, unscrupulous traders may feel encouraged to commit tax offences.
At present, NBR’s claimed revenue of over Tk 40,000 crore is tied up in various cases at the High Court and Appeals Tribunal under the Revenue Commission. Some of these claimed revenues have been pending for over 10 years.