Users, ISPs relieved as NBR cuts VAT rates

Both end-users and internet service providers could breathe a sigh of relief after the National Board of Revenue slashed the value-added tax ISPs pay while buying wholesale bandwidth and connectivity yesterday.

In a notice, NBR brought down the VAT at international internet gateways (IIGs), nationwide telecommunication transmission networks (NTTNs) and international terrestrial cable (ITC) levels to 5 per cent from 15 per cent.

Thanks to the move, the ISPs will no longer move ahead with their plan to increase internet prices at the end-user level they had announced in July because of the government's long inaction.

Since July last year, ISPs have been paying 15 per cent VAT to the IIGs and another 15 per cent to NTTNs, said MA Hakim, president of the Internet Service Providers Association of Bangladesh (ISPAB).

But they were able to charge 5 per cent VAT at the retail level. This meant VAT incidence for ISPs is 35 per cent.

The two-stage VAT increased the business cost by about 30 per cent and the VAT policy has been bleeding them for more than a year, ISPAB said in July.

Last year, ISPAB met with the top officials of NBR and the telecommunication minister, who assured the association of resolving the issues and requested it not to hike internet prices at the retail level. 

As the government did not resolve the issue, the association announced in July that it would either observe weekly service shutdowns of one or two hours across the country or increase the prices.

"Now, we are not going to hike the internet usage charge," Hakim said.

As there had been truncated VAT at the end-customer level, the ISPs were not able to claim VAT rebate. As a result, ISPs incurred losses because of the VAT at multiple stages, he said.

Until fiscal 2017-18, the end-users paid a 15 per cent VAT on their internet usage while the internet service providers 15 per cent on their bandwidth purchases and another 15 per cent on purchases they made for transmission purposes.

As there was 15 per cent VAT at all levels, the ISPs were allowed to take rebate while paying to the government.

ISPs did so by deducting the VAT paid to the IIGs and NTTNs from the sum they collected from the end-users.

Currently, there are 80.84 lakh active broadband connections in the country. According to the ISPAB, 3.5 crore users are enjoying the fastest internet service from them regularly.

There are 2,000 licenced and 5,000 illegal ISPs in Bangladesh, Hakim said.

Six companies have NTTN licences and 34 IIG licences.