Highest growth in pricey edible oil taxes

Consumers of pricey edible oils contributed the highest growth of 241.30 per cent in the government's VAT collection last fiscal as banks managed some increase while insurers were negative among large corporate taxpayers.

Officials, however, say the financial year (FY) 2022-23 upswing in value-added tax (VAT) collection from edible oil sales was because of paltry receipts in the corresponding previous period for offering exemption to keep prices affordable on the overheated local market.

Collection of the consumption tax from the banking sector registered a low 5.07-percent growth in the past financial year, while the bankers strived for advances by way of devising few newer savings schemes.

Insurance sector's tax growth looked stymied in a negative territory, according to official data.

Depositors to large commercial banks contributed 5.07 per cent of consumption taxes to the public exchequer last year-a period in the cusp of economic rebound worldwide from pandemic-and war-induced crises.

The government's revenue authority mobilised Tk 31.21 billion worth of VAT from 17 large commercial banks against Tk 29.71 billion in the previous year, according to data compiled by the large taxpayers unit (LTU) under VAT wing of the revenue board.

The year-on-year growth reflects higher inclusion of people in the recorded financial transactions, but decline in imports of around 26 per cent until May 2023 of last fiscal year has been cited as a major reason for lower growth.

Chairman of the Association of Bankers, Bangladesh (ABB) and Managing Director and Chief Executive Officer (CEO) of BRAC Bank Ltd Selim R.F Hussain says the deposit growth was 6.0 to 7.0 per cent in banks while lending grew around 10 per cent last year. "Naturally, collection of VAT would not mark substantial rise in this situation."

Mosleh Uddin Ahmed, Managing Director and CEO of Shahjalal Islami Bank Ltd, also thinks the measures for higher financial inclusion by the regulatory body--Bangladesh Bank (BB)--contributed to the positive growth in VAT collection from banking sector.

He says tendencies of saving in formal channels have increased as banks have launched several schemes for all sections of people--students, remittance earners, farmers and so.

"Introduction of mobile financial services, agent banking has helped to reduce intervention of 'mohajons (moneylenders)' thus reducing informal financial transactions," he adds about the modern-day financial technologies used for financial inclusivity.

The SIBL booked an average increase of bank accountholders by 25,000 to 30,000 per year, he said as an instance of banking expansion.

However, insurance sector lagged behind as consumption taxes marked a negative 4.34-percent growth last year, according to VAT LTU data.

The National Board of Revenue (NBR) received Tk 2.20 billion in VAT from six large insurance companies against Tk 2.30 billion in the previous year.

Syed Shahriyar Ahsan, Chief Executive Officer (CEO) of Pioneer Insurance Company Limited, has an explanation for the tax stagnation. "Decline in imports due to foreign- currency shortages is the main reason the insurance services faced a setback," he says.

Another reason he cites is decline in premium rates on average aligning of lower overseas rates.

A senior official of the NBR has said the government has withdrawn third-party insurance system on motor vehicles and that resulted in decline in VAT collection from insurance companies.

Insurance-insiders see penetration rates of insurance in Bangladesh as poor--around 1.0 per cent in non-life--as industries have yet to develop efficiency on claim settlement of insurers.

Tobacco users retained a major share in consumption taxes like in previous years.

The government received Tk 306.07 billion or 24.48 per cent alone in total aggregate VAT collection of Tk 1.25 trillion last FY from two tobacco companies, which rose by 10 per cent last FY.

The NBR data show mobile-phone users paid nearly 11-percent higher taxes last year. The VAT wing collected Tk 94.42 billion in consumption taxes from four large cell-phone companies: Grameenphone, Robi, Banglalink and Teletalk.

Association of Mobile Telecom Operators of Bangladesh (AMTOB) Secretary-General Mohammad Zulfikar says mobile operators in the country are continuously investing in and expanding their networks, for achieving enhanced service quality and overall growth of the industry.

"In addition, the telecom operators acquired significant amount of spectrum for $1.2 billion to further improve the quality of service during last fiscal year. These together contributed to the growth in VAT collection in 2022," he adds.

Some 18 top pharmaceutical companies paid Tk 37.48 billion, up by 7.59 per cent, last year on their sales and distribution of medicines.

Consumers of beverages paid nearly 29-percent higher taxes last year. Four top beverage companies paid Tk 8.72 billion VAT last year compared to Tk 6.78 billion in the corresponding period of previous year.

Nine large cement companies paid above 39.21-percent higher VAT last year. VAT collection from ceramic tiles and paints and varnishes rose by above 5.0 per cent last year.

The VAT receipts from consumption of soap, biscuits, dairy products, edible oils, footwear-company BATA, paper, packaging materials and cosmetics grew by 17.05 per cent, 14.08 per cent, 14. 31 per cent, 17.27 per cent, 6.32 per cent and 34.75 per cent respectively.

Five top luxury hotels have paid 48.05 per cent higher VAT while water consumers paid 22.74-percent higher.

Consumers paid 21.57-percent higher taxes as prices of gas increased sharply. However, consumption taxes from electricity consumers fell by 4.83 per cent.

According to the VAT law, people have to pay up to 15-percent VAT on consumption of services from the financial institutions.

Distinguished fellow at the Center for Policy Dialogue (CPD) Prof Mustafizur Rahman says sectors that are dependent on external trade are affected due to decline in the opening of letter of credit (LC), reflecting poor growth in VAT collection.

On the other hand, VAT collection grew higher from the businesses that witnessed escalation in prices last year.

"Consumption-tax collection from banking sector also showed poor growth following decline in imports and depleting tendencies in saving due to inflationary pressure," says the economist.

Prices of gas, cement have increased, contributing higher VAT to the public exchequer, he noted.

Former member of the National Board of Revenue Farid Uddin mentions that the number of accountholders increased in the commercial banks while they introduced different service charges where VAT is applicable.

He has, however, found banking sector's contribution to VAT collection "tiny compared to that of other sectors".

According to BB data, the number of millionaire bank account holders stood at 110,192 in January-March and they deposited Tk 6.91 trillion with banks.

However, the increase in the number of accounts by well-off sections of people has not been reflected in the VAT collection.

The LTU collected a total of Tk 585.66 billion in revenue from 110 companies last year against its target of Tk 660.66 billion. However, the unit has achieved nearly 12-per cent growth in VAT collection over the previous year.

Senior VAT officials have said the number of companies in LTU remained same while VAT target is increasing for the unit.

"Effort-based collection" in the month of June contributed to the escalation in the pace of VAT mobilisation, they said.

[email protected]