VAT cut for internet backward linkages

The National Board of Revenue (NBR) has reduced value-added tax (VAT) on backward linkages of internet service providers to 5 percent from 15 percent.

The development followed a letter from the ICT ministry in November last year which sought the slashing of the VAT rate on backward linkage service providing entities to reduce the cost of internet usage for more than 9 crore internet users.

In a letter sent to former finance minister AMA Muhith, ICT Minister Mustafa Jabbar said end-users would not benefit from the reduced VAT rate of 5 percent unless VAT on International Terrestrial Cable (ITC), International Internet Gateway (IIG) and Nationwide Telecommunication Transmission Network (NTTN) was reduced to 5 percent.

The NBR reduced VAT on internet use to 5 percent from July 1 in the face of appeals from service providers to withdraw the indirect tax that ultimately falls on consumers.

In the latest notification issued on January 15, the revenue collector said it waived VAT in excess of 5 percent on the ITC, IIG and NTTN. The reduction will cost a Tk 800 crore loss in revenue, said a senior official of the NBR.

Internet service providers and telecom operators, however, said the VAT cut would not help reduce the cost of internet usage as one of the main backward linkage service providers, Bangladesh Submarine Cable Company Ltd, has been left out.

In absence of the zero rate of VAT for all along the supply chain, mobile phone operators and others would be unable to claim rebates on VAT they pay for purchase of bandwidth from these service providers, said revenue officials.

“This is jugglery with figures. Cost of internet usage will not fall,” said Suman Ahmed Sabir, chief strategy officer of Fibre@Home, an importer and wholesaler of bandwidth.

MA Hakim, president of Internet Service Providers Association, said there would be no impact at users' end but cost of ISPs would decline a bit.

The NBR, in its analysis earlier, said internet service was one of the main revenue generating sectors, bringing Tk 1,300 crore for the state coffer before the reduction of the VAT rate at the users' end.

The NBR sought to reinstate the standard 15 percent VAT on all through the value chain.

Complexity related to VAT rebate would be resolved if 15 percent VAT is imposed all throughout the chain and revenue collection from the sector will continue to increase, officials said.