NBR against VAT waiver on edible oil, sugar
The revenue board has opposed a commerce ministry suggestion to reduce the value-added tax (VAT) on edible oil on the grounds that the imposition of the indirect tax has little effect on the prices of key cooking ingredient.
The prices of soybean oil have increased by only Tk 1 for each litre after the indirect was levied all throughout the value chain under the new VAT law that became effective from July last year, said the National Board of Revenue (NBR) in a report submitted to the Finance Minister AHM Mustafa Kamal recently.
The NBR took the position after the Commerce Minister Tipu Munshi wrote to Kamal seeking waiver of VAT on the import, manufacturing and trading stages based on a report from the Bangladesh Trade and Tariff Commission (BTTC) in December last year.
The BTTC suggested exemption of VAT on production, distribution and trading stages to curb the price spike during the month of Ramadan, the fasting month for Muslims.
In his letter, Munishi also requested reduction in import tariff of raw sugar to keep the prices of the sweetening agent steady in the domestic market.
Also known as consumption tax, the BTTC report said VAT and advance tax (AT) in the value chain of edible oil contribute to the spike in prices of the essential edible oil.
And the incidence of the indirect tax will further increase the burden on the wallets of consumers from all walks of life seeing that the prices of of soybean and palm oils are spiralling globally.
The nation largely depends on imports to meet its consumption requirements.
Bangladesh annually requires 20 lakh tonnes of edible oil and it meets almost 90 per cent of its demand through imports.
The commission's observation came after major processors, now less than half a dozen, hiked the prices of the key cooking ingredient on higher international prices and increased VAT.
The NBR in its report to the finance ministry said it slapped 15 per cent VAT on the import of crude soybean and palm oil at the manufacturing stage in fiscal 2018-19. As a result, net VAT on edible oil was 15 per cent last fiscal year.
From this fiscal year, it imposed a 15 per cent VAT on production and 5 per cent advance tax, a kind of VAT, on imports.
Although the total tax incidence (TTI) rose to 20 per cent at the import stage, there is scope for processors to claim rebate on VAT paid during import and adjust the AT with payable VAT.
And because of millers' scope to claim rebates of VAT paid at the import stage and adjustment of VAT, only net VAT is payable at the distribution stage.
The NBR said it also examined value addition related information provided by the processors to its field offices and found a large variation, from as low as 4 per cent to as much as 24 per cent for soybean oil among the three manufacturers.
And in case of palm oil, the rate of value addition among the three millers varies between 5 per cent and 31 per cent, according to the report.
"Low value addition means that they are paying less VAT than what they actually should be paying," said a senior official of the NBR, seeking to remain unnamed.
It also raises the question of how firms sustain with so low value addition.
The NBR said it considered 10 per cent value addition at the manufacturing stage and $795 as the international prices of each tonne of crude soybean oil, as mentioned by the BTTC, in its calculation of VAT burden on consumers for introduction of the new tax measures.
By taking the prices, the revenue collector, which collects more than 85 per cent of total tax for the state, concluded that consumers will have to pay an additional Tk 1 for each litre of soybean oil for levying VAT on the entire value chain under the new law.
And the impact of VAT has reduced as the international prices of soybean oil have fallen recently, it added.
So, the NBR said, there is no logical ground to blame the imposition of VAT at the manufacturing sector for the price hike of cooking oil.
Officials said the NBR levied the indirect tax on production of edible oil in order to monitor import, production and sales by millers so that the state gets its due VAT and taxes from the firms operating in the value chain.
As VAT was applicable only at the import stage until last fiscal year, it was not possible for customs and VAT officials to detect the actual volume of import of crude soybean and crude palm oil.
One could inflate or deflate the volume of imports to avoid VAT and taxes, said officials.
By imposing VAT particularly at the milling stage, revenue officials want to monitor imports and processing by manufacturers.
"When the VAT is levied on both the stages, we will be able to determine the volume of imports and processing and get proper amount of VAT," the official said.
The absence of VAT on the manufacturing stage gave a route to processors to circumvent monitoring, said another official.
Officials said there was no VAT between 2015 and June 2019 at the manufacturing.
In a rough measure, the NBR estimated that Tk 1,250 crore of VAT was lost for keeping the indirect tax exempted from the milling stage of edible oil.
So, in order to ensure intensive monitoring, it will not be wise to waive VAT at the manufacturing stage of edible oil, which is potentially a big revenue source, said the NBR in its report to the finance minister.
The NBR in its report also cited the commerce ministry's recommendation to reduce sugar import tariff and VAT on sugar and said the import duty and VAT was increased this fiscal year to protect the state-run Bangladesh Sugar & Food Industries Corporation (BSFIC).
After the hike in tariff by 50 per cent and regulatory duty by 10 percentage points on raw sugar, sales of BSFIC increased.
The prices of sugar remained steady between June last year and January this year and added that there had been no negative impact even after the increase in import duty in June 2019, it said.
Rather, the sales of BSFIC's sugar have increased although imports declined.
The NBR said continuation of the current duty structure is necessary to protect the interests of the state sugar mills.
"Again, it will not be wise to reduce import tariff on sugar imports," it said, while suggesting proper market monitoring by the commerce ministry.
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