NBR to continue support for ‘Made in Bangladesh’ brand

Highlights:

• CNG-run three-wheeler manufacturing may get VAT exemption
• PVC pipe raw materials may qualify for the facility too
• Plans afoot to reduce existing VAT at wholesale and retail levels
• Legal regulations may be made simpler

The National Board of Revenue (NBR) aims to continue policy support in the next fiscal year for the local industries that produce items with the "Made in Bangladesh" label, according to officials.  

The revenue board is considering exempting the value-added tax (VAT) on local production of CNG-run three-wheelers to reduce import dependence. Similarly, there are plans to exempt VAT on raw materials for PVC pipe manufacturing.

According to industry insiders, the current local market size of PVC pipe is around Tk60,000crore, while the local manufacturers are entirely import dependent for the raw materials.  

Besides, there are also plans to reduce the existing 5% trade VAT on wholesale and retail to 2%, though traders demand slashing it to 0.5%. Restaurants and eateries may also enjoy reduced VAT rates.

Sources at the revenue authorities who are privy to formulating the national budget further said the revenue board is also considering changes to several rules to make the existing VAT law more business-friendly.

The sources said they are reviewing the recommendations received from the business bodies. Whatever proposal is formulated, it will be finalised after the approval of the finance minister and the prime minister.

NBR Chairman Abu Hena Md Rahmatul Muneem expressed a positive attitude toward continuing and expanding the revenue board's cooperation in expanding local industries.

At multiple pre-budget meetings with different trade bodies last month, he said the NBR wants to facilitate import substitution industries. He said the revenue board was also assessing the outputs of the facilities that have been provided in the past.

Insiders said at present there is no CNG-run three-wheeler manufacturing company in the country. All the three-wheelers that ply the country are imported. According to the Bangladesh Road Transport Authority (BRTA), the number of auto-rickshaws registered in the country till February this year was around 3 lakh.

Currently, different tariffs and duties totalling to 90% are slapped on three-wheeler imports. If the vehicles are manufactured locally, the duties and tariffs will be 45%. It will come down to 33% if VAT on manufacturing level is exempted.     

A senior official of a leading auto company told The Business Standard that the VAT exemption would attract the local entrepreneurs.

Another are PVC pipes, which are widely used for water supply and sanitary piping. Once entirely imported, the item is now being manufactured locally by different companies such as National Polymer, RFL, A1, Lira and Jamuna. The manufacturers have to import key raw material resin -- a petroleum bi-product.

No company in the country produces resin. But local PVC pipe manufacturers say that if the government provides VAT exemption to the local resin manufacturing industry, it will create an opportunity to buy the raw material at comparatively lower prices, which will also help reduce the market price of PVC pipes.

Kamruzzaman Kamal, director (marketing) of Pran-RFL Group, told The Business Standard that they import resin from Korea, Malaysia and Dubai. If the VAT is exempted on resin production, this would help develop a backward linkage industry.

Meanwhile, PVC pipe importers say consumers are paying more owing to exorbitant tariffs on imports in the name of protecting local PVC pipe-makers.

Md Solaiman Parsee, director of the Bangladesh Pipe & Tubewell Merchants' Association, told TBS that import duty on PVC pipes was currently 104%. Therefore, a Tk10 pipe in the international market became Tk21 in the local market.  

"Local producers are free from VAT. The local producers are supposed to be able to sell those products at a maximum of Tk12-Tk13. But they sell at Tk19. This means that consumers are paying too much as a handful local industries are cashing in on the benefits," he added.

How effective has it been

The government has been providing various exemptions including income tax and VAT for the local industries for the last few years. The exemptions have yielded remarkable outputs in many cases. For example, local brands are now making refrigerators, televisions and air-conditioners (ACs) though the electronics market was earlier totally import dependent.

The government has been providing local mobile phone manufacturers with tax and VAT exemptions over the past few years to expand the local mobile handset industry. According to local entrepreneurs, companies are now supplying about 70% of the local demand for smartphones and 50% for feature phones. The VAT and tax cut in the domestic shipping industry has also helped increase the number of seagoing vessels by 30 in recent years.

Besides, tax exemption is given to automobiles for 20 years, to different home appliances for 10 years and to agro-products, light engineering and IT hardware for 10 years. These were announced last year as part of the campaign to promote "Made in Bangladesh".

The facilities offered by the NBR, however, have not worked out in all sectors.

Currently, there is 5% VAT at trade level. Traders have been demanding for a long time to reduce the VAT, saying some of the wholesalers, dealers or distributors in some sectors do not even have 5% profit. Therefore, the NBR is not able to collect the expected VAT from these sectors. Many businesses, especially in old Dhaka, often hide their sales records to avoid this VAT.

A senior revenue official told TBS that reducing the VAT to 1%-2% is under consideration. Attempts will be made to reduce this and ensure that all the eligible traders pay VAT. He himself admitted that the government is not able to collect the expected trade VAT due to the current high rate.

Snehasish Barua, partner of chartered accountant Snehasish Mahmud & Co, told TBS that 5% trade VAT is not reasonable since the value addition by many businesses is much less.

"Therefore, if the VAT is reduced to 0.5% and slapped on turnover, many would be interested in paying that tax," he said.

The NBR collects Tk3,000crore as trade VAT annually. He noted if this rate is reduced and proper collection is ensured, it will increase several times.