15pc VAT on all port services to hurt businesses, consumers
Businesses are expected to face an increase in export and import costs as 15 percent value added tax (VAT) will be charged on all port service fees in line with a recent directive of the revenue authority.
The National Board of Revenue (NBR) said the indirect tax should be collected on all services -- from security checks of goods to settlement of shipments.
The NBR directive came after the Chittagong Port Authority (CPA) sought clarification on the applicability of VAT on charges and fees collected on various services provided to businesses.
The authority of the seaport, which handles 80 percent of the country's $78 billion annual overseas trade, said it provides 60 types of services to exporters and importers.
Presently, the indirect tax is imposed on 25 of those services.
The NBR, in a letter to the CPA issued on December 27, said the remaining 35 services, along with all that provided by other ports, were directly or indirectly linked to settlement of export and import shipments of goods.
So, 15 percent VAT should be collected on charges of all services provided by the ports, it said.
The revenue authority asked the CPA as well as its field offices, including all customs houses, to collect the indirect tax and deposit the money to the state coffer.
“The matter deserves urgent consideration as it involves a huge amount of revenue,” said the NBR.
Two business leaders, Md Shafiul Islam Mohiuddin, president of the Federation of Bangladesh Chambers of Commerce and Industry, and Mahbubul Alam, president of the Chittagong Chamber of Commerce and Industry, opposed the latest NBR move of charging VAT on all port services. “We already pay duty and VAT to import goods. How many times can one pay VAT on an item? The collection of VAT will increase pressure on both exporters and importers,” said Alam.
“Ultimately, the burden will fall on the end users as it will increase our production cost,” he said, adding that it would not be rational to impose the VAT.
Mohiuddin said Chittagong port is costlier than Bangladesh's competing countries and its services lagged far behind.
“It is good that they (CPA) fare well with limited resources. But service standard remains at lower level,” he said, citing that two out of four existing gantry cranes were out of operation.
He said business operation costs of apparel exporters increased 18 percent in the last two years while prices of clothes declined about three to four percent.
“Besides, our local currency has not devalued (against the US dollar) to the extent the currencies of our competing countries,” he said.
Mohiuddin said efficiency of the port should increase by modernising and enhancing its facilities to improve the country's competitiveness.
“The job should be to create facility, minimise cost and introduce modern systems to provide services,” he said.
But a sudden imposition of VAT will stoke inflation and increase pressure on businesses and consumers, he said.
“This needs to be adjusted timely and chronologically and adjustment becomes acceptable to people when they get facility,” he said, suggesting that the authorities take decisions based on discussions with all the port users, including apparel-makers.
Prof Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue (CPD), said ports particularly the Chittagong port suffer from lack of efficiency.
“And cost of exporters and importers rises owing to the inefficiency. Efficiency should be improved so that cost of doing business is reduced and the government gets its due revenue,” he said.
CPD Research Fellow Towfiqul Islam Khan said expansion of the VAT net would certainly bring additional revenue for the NBR.
“However, this means, at the end additional costs will have to be paid by the consumers. It needs to be carefully monitored so that the consumers are not disproportionately penalised. This will also marginally increase the cost of production for exporters,” he said.
CPA Member (Finance) Md Kamrul Ameen said they are yet to start collecting the VAT from all services.
The move involves a large number of stakeholders, for which the Ministry of Shipping will be informed beforehand through a letter as businesses might object, he added.
“But we have already taken steps to collect the money. The VAT will be collected as this is a government decision and we do not have scope to go beyond that,” he said.
Mohammad Golam Mostofa, member for finance of Mongla Port Authority, said they were yet to receive a letter from the NBR. “We will take steps once we get the letter,” he said.