The Federation of Bangladesh Chambers of Commerce and Industry yesterday urged the government to cut the VAT rate by more than half to 7 percent, once the VAT system goes online under the new law.

"Why do the poor pay 15 percent VAT? What is the logic? We must understand why our collection is so low. The entire internal revenue system is based on mistrust," said FBCCI President Abdul Matlub Ahmad at a seminar on business processes under the new law -- VAT and Supplementary Duty Act, 2012.

The National Board of Revenue organised the event at the Institution of Diploma Engineers, Bangladesh to update the business community and revenue officials on the online VAT payment and administration system, which is being developed to enforce the new law from July 1 this year.

The new law, which envisages automated and paperless VAT administration to boost revenue collection, will replace the existing VAT Act 1991.

The new law maintains the VAT rate at 15 percent in line with the existing law.

"It is too high although the manufacturers and intermediaries can call back the money (VAT rebate). But ultimately, it is the consumers who pay the VAT," Ahmad said.

Bangladesh is not like Europe or Thailand or Malaysia, but the VAT rate is 6 percent in Malaysia and 7.5 percent in Thailand, he said.

“We should immediately work on this," he said, proposing that the VAT rate should be between the Thai and Malaysian rates under the online VAT system.

"Simplicity is the best way to collect tax."

Ahmad cited court cases involving Tk 31,000 crore in tax and suggested speedy settlement of the disputes in the interim period to start the paperless VAT administration.

He also suggested NBR train businessmen on how to file returns and pay VAT online.

He also requested the tax administrator to team up with FBCCI, district chambers and associations to train and inform the business community about the new VAT system.

State Minister for Finance MA Mannan said minor problems might arise in the initial days of implementing the new VAT law. “We hope all will be okay in two years.”

"Online VAT is a reality. It is going to be done. But it is a journey and we have a long way to go," said NBR Chairman Md Nojibur Rahman. The revenue administration would increase coordination with businesspeople. NBR would hold a strategic workshop with the businesses in this regard, he added.

NBR Member Md Rezaul Hasan said contact or call centres will also be set up.

From April, the existing VAT paying units would require online re-registration to get the nine-digit “business identification number” in place of the existing 12-digit number, said Hasan.