Govt may reduce fine on VAT evasion

The government may relax the rules relating to the penalty for VAT evasion and interest on delayed VAT payments in the upcoming national budget to encourage businesses to pay their dues to the state.

Those found guilty of VAT (value-added tax) evasion currently face fines exactly to the tune of the evaded taxes. The amount of this penalty might be reduced by half. On the other hand, the term of interest payment might be capped at 24 months or 36 months, with the monthly interest rate kept unchanged at 1%.

The National Board of Revenue (NBR) has put forth a proposal in this regard, NBR sources involved in preparing budget proposals told The Business Standard. If the proposal gets final approval, it may be included in the budget for the fiscal 2022-23 – scheduled to be presented in parliament by the finance minister on 9 June, they added.

The sources mentioned that at present the amount of fine and interest often exceeds the amount of the evaded VAT or the amount claimed by the NBR. Because of this, the companies accused of evading fines opt for moving the court without paying VAT, causing the NBR's collection of revenue to get stuck in limbo.

If the amount of interest and penalty is less, the NBR will have an opportunity to get the evaded VAT easily and quickly, the NBR officials observed, adding, "Basically, the VAT-payers who are not real fraudsters but are in arrears due to a lack of knowledge or owing to making mistakes will be encouraged to pay the government."

VAT officials, however, fear that such an initiative could encourage fraudsters and those who want to delay making government revenue payments.

In FY21, the rate of penalty on any case of VAT evasion was 200%. The rate was brought down to 100% last year.

On the other hand, up until FY21, a VAT payer would have to pay 2% monthly interest on delayed payments of VAT. The rate was reduced to 1% last year. But the amount of interest would go up as the term of payment got longer. In some cases, taxpayers would have to pay large sums of money in fines and interest, other than the NBR-claimed amount. Therefore, the time limit for payment of interest may be reduced in the upcoming budget.

A commissioner of a VAT commissionerate in Dhaka told TBS that the department had served a demand notice for VAT of Tk70 crore on a reputed company in the area. The business organisation went to court challenging the notice. There have been 99 hearings of the case so far since the notice was filed seven years ago, but the court is yet to deliver its verdict.

If the rates of fine and interest are lowered, those who deliberately want to procrastinate in payment of VAT could feel encouraged.

Snehasish Barua, a VAT law expert, and partner at the chartered accountant firm Snehasish Mahmud and Company, told TBS that at one time the rate of penalty on VAT evasion was 50%.

"In our budget proposal, we suggested bringing it back to the previous level and also proposed a reduction in the term of interest payment.

"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 this facility could be given considering the current situation. But if it continues for a long time, unscrupulous traders may feel encouraged to engage in tax infringements.

At present, the NBR's claimed revenue of over Tk40,000 crore is stuck in various cases in the High Court and the Appellate Tribunal under the revenue board. Some of these claimed revenues have been pending for more than 10 years.