VAT mandatory for brick factories

KATHMANDU, MAR 13 -

A dialogue committee formed to address the row between Inland Revenue Department (IRD) and brick factories over the imposition of value added tax (VAT) on bricks production, has come with the recommendation to impose the tax.

Although representatives from the factory operators opposed the recommendation, majority of committee members stood in faovur of imposing VAT on bricks production and the report was also prepared accordingly. The committee submitted its report to Finance Minister Barsaman Pun on Monday.

“We have mentioned in the concluding section of the report that the VAT must be implemented,” said a Finance Ministry official, who is also a member of the dialogue committee.

Although the government has been trying to bring the brick factories under VAT net, they have been protesting the government’s move. Despite committee’s recommendation to implement VAT on bricks productions, Finance Ministry officials harbour doubts over its implementation.

“Last year too, an attempt to bring them under VAT net had aborted after then Finance Minister Bharat Mohan Adhikari and factory owners reconciled themselves,” said a source at the Finance Ministry.

 However, the IRD continued its effort and issued notice in the name of brick producers in second week of January to come to VAT net. But they resented the IRD move by stopping sales of bricks on January 15. The Finance Ministry then formed an 11-member dialogue committee on January 27 under government’s joint secretary Wegendra Poudyal.

With the representatives from the government and brick producers sticking to their stance, the committee suggested various nine options in the report, including the one to register the firms under VAT and exempt them from paying outstanding VAT amount. Another alternative was to collect VAT from all factories collectively as per their capacity, withdrawing certain VAT amount to respective firms.

“The government can also impose ‘green tax’ at the rate a little lower than VAT rate,” the report has suggested.

Collecting VAT in flat rate and withdrawing 85 percent of amount back to themselves is another option suggested by the brick factories.

However, the government officials say that there is no point in implementing such measure as it does not require to issue bills. “Implementing VAT will be just a drama if bills are not issued,” said the finance ministry source.

Officials say that the transactions of brick factories will remain non-transparent if VAT is not imposed.

However, vice-president of Federation of Brick Factories Bishworam Kwan is hopeful that the government will take positive decision on brick factories despite the existing difference between the two sides.

According him, only 485 out of about 750 brick factories in operation come under tax net at present, according to the IRD. There is a provision which says any factory with an annual transaction above Rs 2 million should be registered with the VAT and those with transactions below that should register with excise duty. Currently, 210 factories come under the VAT net.

“Hardly any brick factory may have transactions less than Rs 2 million a year given that price of brick has soared lately,” said an IRD official.

A recent research carried out by IRD found out that each factory within the Valley has been producing 5-20 million pieces of bricks at a time. A factory produces bricks 5-6 times a year. Each brick costs Rs 10.

Source: Kantipur