NBR eyes additional Tk11,450cr VAT from 6 major sectors

Highlights:

• Tk1,77,000cr target for FY25
• Target for FY24 was Tk1,51,700cr
• NBR plans to collect Tk6,000cr from tobacco, Tk1,800 from mobile phone talk time, internet usage, and SIM cards, Tk1,000 from bank deposits
• Tk400cr from air conditioners and refrigerators and Tk250cr from sugary items
• Tk2,000cr from VAT at source from entities with over Tk10cr turnover

The National Board of Revenue (NBR) is aiming to collect an additional Tk11,450 crore by increasing the value-added tax (VAT) rate and reducing exemptions in six key sectors.

These sectors are tobacco, mobile phone talk time and internet use, excise duty on bank deposits, sugary items, VAT deduction at source, and electronic items.

The NBR has already provided a sector-wise breakdown of its VAT collection target to the finance ministry as part of its fiscal measures proposals. 

The VAT collection target for the just concluded FY24 was Tk1,51,700 crore. This target has been increased by approximately 17% to Tk1,77,000 crore for FY25.

However, the amount of VAT collected for FY24 has not been finalised yet. If the target for FY24 is achieved, the NBR will need to collect an additional Tk25,300 crore in VAT in the current fiscal year FY25. 

"Normal economic growth and inflation will naturally lead to a normal increase in VAT. Additionally, the fiscal measures, including the increased rates of new VAT and supplementary duties, will enable the recovery of this additional VAT," a senior NBR official told The Business Standard.

The NBR aims to generate the highest VAT revenue from the tobacco sector. In addition to increasing the value of tobacco products in the budget, the rate of supplementary duty has been raised at all levels as well. 

In FY22, about Tk33,000 crore was collected in VAT and SD from the tobacco sector. With the new rate increase, the NBR expects to collect an additional Tk6,000 crore.

The telecom sector is another significant target for the NBR.

Increasing the tax on mobile phone talk time, internet usage, and SIM cards can generate an extra Tk1,800 crore. 

Moreover, raising the excise duty on bank deposits can generate an additional Tk1,000 crore from customers, while Tk400 crore can be collected from air conditioners and refrigerators, and Tk250 crore from sugary items, including beverages and ice cream.

Furthermore, if an entity has an annual turnover of more than Tk10 crore, it will be required to deduct VAT at source at a fixed rate on its expenditures. This measure is expected to generate an additional Tk2,000 crore. 

However, this additional revenue will result in consumers bearing the burden of the increased VAT target of more than Tk25,000 crore in the new financial year. 

Consumer representatives have consistently opposed raising the VAT rate, viewing it as an indirect tax that disproportionately affects consumers.

SM Nazer Hossan, vice president of the Consumer Association of Bangladesh (CAB), told TBS, "In addition to VAT, the additional import taxes collected at the import stage will increase the prices of goods, effectively acting as indirect taxes. This could further burden consumers, especially amidst already high inflation."

"Instead, increasing the income tax rate, focusing on reducing evasion [of tax] and corruption would boost revenue collection and give some relief to consumers," he said.

Professor Mustafizur Rahman, distinguished fellow of the Centre for Policy Dialogue (CPD), said, "It is our structural flaw that the government heavily relies on indirect taxes rather than direct taxes, which ultimately puts pressure on consumers, including those with lower incomes."

Citing an example, he said, "The additional supplementary duty imposed on mobile phone talktime and internet users in the budget will impact millions of people, including the poor, who are already facing high inflation."

Urging the government to focus on direct taxes in this situation, he also emphasised the importance of ensuring that VAT collections are not lost to leakage.