NBR loses revenue as smokers switch brands of cigarettes



The tax administration recently became aware of the strategic error in an internal assessment of the situation of the collection of VAT

The collection of value added tax (VAT), which accounts for the lion’s share of government revenue, suffered a major setback in the first quarter as the tax administration’s strategy to increase tobacco sector revenues s ‘turned against him.

Smokers are switching from more expensive to less expensive brands of cigarettes after the National Board of Revenue increased the prices of top-tier brands of cigarettes in June, which resulted in a loss of NBR revenue.

The tax administration recently became aware of the strategic error in an internal assessment of the VAT collection situation.

NBR President Md Mosharraf Hossain Bhuiyan, Board members Md Jamal Hossain (VAT implementation and IT), Abdul Mannan Shikder (VAT policy) and VAT commissioners were present at the evaluation meeting.

According to the findings of the NBR, the tax administration collected 5,900 crore Tk from the tobacco industry in the first quarter (July to September) of the current fiscal year, down 1,000 crore Tk from the previous year. corresponding period of the previous financial year.

The tax administration cited this loss of revenue from the tobacco sector as a reason for the low growth in VAT collection during the first quarter of the current fiscal year.

The NBR says it typically derives more than 10% of total tobacco industry revenue each year.

Last year (fiscal year 2018-19), the tax administration collected Tk 28,000 crore from the sector, or 12.50% of the total revenue collected during the fiscal year.

If the current situation continues, the collection of VAT would face a huge deficit compared to its objective by the end of the current fiscal year, apprehends the BNR.

The NBR increased the price of cigarettes from Tk 5 to Tk 18 for a pack of 10 sticks based on the different levels on June 13.

The NBR then estimated additional revenues of Tk 7,000 crore in the current fiscal year thanks to the increase in cigarette prices.

NBR member Md Jamal Hossain said it was expected that VAT collection would increase after cigarette prices hike, but the situation was reversed.

“The opposite has happened because smokers have switched to lower tier cigarettes for the abnormal increases in different cigarette price points,” he said.

He said that the price of mid-level cigarettes, the most consumed category, was increased by 31.25% while the price of lower-level cigarettes was only increased by 5.71%.

All cigarette companies, including British American Tobacco Bangladesh, faced a decline in sales of mid-level cigarettes, he said, adding that sales of lower-level cigarettes, on the other hand, had increased.

But as lower tier cigarette incomes were also low, overall VAT collection suffered a setback, the member said.

NBR earned Tk 26.27 from a lower tier 10 stick cigarette pack compared to Tk 38.88 from a mid tier cigarette.

In accordance with the order of the NBR, the minimum price of a pack of 10 sticks of first level cigarettes was set at 37 Tk, against 32 Tk previously. The minimum price of the second level has been increased to Tk63 from Tk48 and the third to Tk93 from Tk75.

In addition, the revenue collection authorities categorized a new level setting the minimum price at Tk 123.

The tax administration collects 15% VAT, 55-65% additional duty, and 3% regulatory duty on domestically produced cigarettes, while imports of the products are subject to duties of 600% in total.

The BNR collected Tk 1,7373.47 crore in VAT between July and September, an increase of 0.86% year-on-year.

However, VAT collection faced a shortfall of Tk 6,429.17 million from its target of Tk 23,802 in the first quarter.

Nine other reasons for the VAT deficit

The tax administration has identified nine other reasons for the insufficient VAT.

It said it lost Tk 1,528 crore in the first quarter of the current fiscal year as the government waived 15% VAT on the import of liquefied petroleum gas (LPG) in September last year.

Other reasons include the adaptation of the “Law on VAT and Additional Duties 2012”, which entered into force on July 1 of this year.

Reconciliation of the 5% advance tax (AT), no definition of raw materials, 100% instead of the previous 80%. provision of price declaration, the drop in sources to 15 against 39 for VAT at source and the VAT refund facilities under the new VAT law are the main obstacles to its implementation.

The NBR president, meanwhile, tasked officials with ensuring the implementation of the new VAT law at the field level and urged them to strictly monitor so that no one can evade VAT.


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