In the Preamble of the VAT and SD Act 2012, four objectives have been stipulated. Those are (1) expansion of the base for imposition of Value Added Tax (VAT), Supplementary Duty (SD) and Turnover Tax (TT), (2) simplification of tax collection procedure, (3) consolidation of the rules and procedures, and (4) enactment of other related provisions.
We have plenty of discussions regarding simplification of VAT procedure but as of today, we can not say these have been simplified enough, rather we find VAT procedure is still confusingly complex. If you ask a reader of VAT law, he will opine that it is difficult to grasp the meaning inter alia. At the field level, you will find many queries unanswered leaving the concerned persons somehow managing things without redressing the problems.
While thinking about VAT simplification, at the outset we need to know what does this mean and what are its dimensions. First, each provision of the VAT law has to be in conformity with the economic activities of our country. It is not needed to make provisions about activities that are not present here. Such additional provisions make the readers confused. It is not wise to make the readers read those things which are not relevant in this country. When those practices will develop in our economy, VAT provisions may be considered, but not now. For instance, section 39 (lotteries, lucky-draws, housie, raffles and similar undertakings), section 44 (vending machines), rule 35 (adjustments related to lottery, lucky-draw, raffle-draw, housie and similar activities) to cite a few. However, in the legal discourse, there are opinions that in the law, there should be adequate provisions to meet any future challenge. I believe, it is not relevant with regard to VAT law. VAT law changes every year. Moreover, we do regularly make provisions with Statutory Regulatory Orders (SROs) through out the year. So, any challenge can hopefully be mitigated with these measures.
Second, simplification requires not making a provision which can not be implemented or is not being implemented. These provisions give rise to unnecessary disputes between tax-collectors and tax-payers. In Chapter Fourteen of the VAT law, there are many harsh provisions such as in section 99 (government lien on immovable property of the defaulting tax-payer and attachment thereof), section 100 (seizure of goods, sale of such goods and disposal of the sale proceeds thereof) etc., which are never resorted to for recovery of arrear tax. Simplification requires that if there is any provision in the law, it has to be implemented.
Third, it requires making provisions on all types of economic activities existing in the economy. If there is an economic activity but no VAT provision, it may give rise to manifold complications for the VAT payers and VAT collectors alike. For example, selling goods on commission basis is a widely practised activity in our trading system but there is no specific provision in the VAT law for collecting VAT on such commissions.
Fourth, provisions of the law require to be described in the sequence of the economic activities that are practically performed. When some one reads the VAT law, he should be in a position to grasp a scenario in the sequence he is reading the law. Only then, it could be understood by him.
Fifth, there must not be any superfluity in the law. VAT law is a description of the economic activities in the sequence the activities are practically performed and lays down methods to collect VAT from these activities. So, it is simply a description and method only. Any superfluity renders it complex.
Sixth, economic activities are constantly changing. The provisions require to be regularly updated in conformity with the changes. If provisions are not changed with changes in the nature of economic activities, then the provisions lose relevance. A dedicated team of experts is needed to keep eye on the changing economic activities and draft provisions according to the changes.
Seventh, simplification requires even application across the country on any matter. Even application requires elimination of discretionary power and setting standards on all matters.
Implementation of any law is challenging without simplification. It is more so with regard to the new VAT law; it is to be understood by many stake-holders of the society ranging from petty VAT executives of the business establishments to the senior level managers and all levels of VAT officials at policy and implementation stages. These thoughts need to be given consideration during budgetary measures of the FY 2020-21.
Dr. Md. Abdur Rouf currently works at a World Bank-financed VAT-related project as a Specialist. Opinions expressed in this article are his own.