Last week this paper reported that a notification from the Ministry of Finance saying taxes are to only be collected later at the border and point of sale retroactively only once the Tax Bill is passed, would lead to millions in loss of revenue since importers would know the taxes coming.
This would lead to tax avoidance, deflection and hoarding.
The first notification from the MoF on the day the bill was presented on 8 November told the Department of Revenue and Customs and vehicle dealers to collect tax at the point of entry and sale respectively. It said the revised Customs Duty, Sales Tax and Green Tax rate will be applicable on imports made on or after 8 November.
This was going well as any Tax Bill is a considered effective from the day it is presented in Parliament to prevent hoarding and tax avoidance.
However, two days later a 10 November notification from the MoF signed again by the Finance Minister told the DRC and vehicle dealers the above order was withdrawn and Customs was asked to keep the existing rate in the system until the Bill is passed by the Parliament.
This created pandemonium as people rushed to hoard and deflect taxes as even a DRC official said it will be difficult to collect taxes later or even refund them.
The Finance Minister Namgay Tshering explaining his second notification said, “We thought the deliberations is going on and if there is a change in the tax rates and if something does not pass through.”
He said the second notice was because the Tax Bill is under deliberation and since there are selective items being proposed for tax revision there may be changes.
“For that matter I have discussed with my own experts within the ministry and so if an addendum is run the people will think that yes from here on we have to be mindful that these tax changes will happen,” said Lyonpo.
He said his second notice anticipated changes in tax in Parliament which happened with items like like cement and eggs where the Parliament increased taxes beyond what was even there in the original Bill.
The minister said both the first and second notice is to prevent hoarding in the market with the speculation that government is coming up with the tax reform.
Lyonpo said that right now they have not asked them to collect the tax. He said in the earlier practice the tax was imposed from day one since it is a money bill and the government has the majority.
Lyonpo said if there is no addendum saying to do it retrospectively then later on people will say they were not informed and so they sold the tobacco at Nu 150.
However, despite the explanations it would have been simpler for all sides to have collected tax from day one on 8 November instead of the 10 November notice that effectively postponed actual tax collection till the Tax Bill becomes an Act.