VAT waived for importing ships of over 5,000 DWT

The National Board of Revenue yesterday waived value added tax on import of vessels of more than 5,000 deadweight tonnage (DWT) to facilitate the growth of the country's sector for oceangoing ships.

The move came following a plea for tax benefits from the Bangladesh Oceangoing Ship Owners Association.

They reasoned that it would increase the number of oceangoing vessels and help them gain an increased share of the $8-9 billion paid as freight charge by Bangladeshi businesses during exports and imports.

Local oceangoing vessels can tap only 2 percent of the market at best for a dearth of vessels, according to industry operators.

The revenue authority in an order however attached some conditions.

There must be mandatory registration of vessels in Bangladesh as a national flag carrier.

Vessels should not be older than 15 years and must be used for carrying freights for at least five years, during which the vessels cannot be sold or transferred.

Vessels operators will also have to submit a bank certificate to the local VAT office every year giving proof of their foreign currency earnings.

When hiring manpower for the vessels, 70 percent should be Bangladeshi nationals.

The International Maritime Organisation's conventions signed by Bangladesh must be abided by, according to the order.

As per the International Convention for the Prevention of Pollution from Ships, double-hulled oil tankers can be imported.

And finally the importers must apply with the NBR seeking the VAT benefit along with approval.

The revenue authority said it would realise the VAT from importers for non-compliance with any one of the conditions. SK Bashir Uddin, vice-chairman of the owners association, said the age condition was not consistent with the import policy order of 2015-18, which allows import of up to 25-year-old ships.

Besides, the requirement for seeking NBR's approval for the VAT benefit will create a lot of hassle for importers, he added.

Hasan Mohammad Tarek Rikabder, first secretary for VAT policy at the NBR, said the NBR attached conditions to prevent misuse of the benefit.

He said the government would lose revenue for waiving the VAT so the waiver has been given to make sure that the nation gets the benefits and share of Bangladesh in the sea freight market.

Until yesterday importers had to pay a total of 25.07 percent as import duty, including 15 percent VAT, on vessels of over 5,000 DWT, according to the NBR.

The NBR provided the VAT exemption for importing vessels of over 3,000 DWT from 1998 to 2012. In fiscal 2012-13, the VAT waiver benefit was extended to those above 5,000 DWT.

The authority withdrew the benefit in fiscal 2014-15, affecting the oceangoing shipping sector, according to the meeting minutes of the NBR on oceangoing ships.

Bangladesh had 85 oceangoing ships four to five years ago but the number of vessels has now dropped to 35.

Between 2013 and 2015 owners sold off their vessels for declining freight rates and high operating costs, according to operators.

And from fiscal 2014-15, the cost of vessels rose after the withdrawal of the VAT exemption benefit for import and manufacturing of ships.

Oceangoing ship owners said Bangladesh's rising overseas trade, particularly increasing imports of cargoes, offers prospects for the sector.