The state-owned Petrobangla has suspended the submission of monthly VAT (value-added tax) returns since December 2020.
The oil and gas company owes Tk 213.18-billion VAT arrears to the National Board of Revenue (NBR) until 07 August 2021.
The petroleum sector contributes 10 per cent of the total revenue collection by the NBR.
NBR officials said non-payment of such a large amount of dues revenue left an adverse impact on the NBR's effort to increase the tax-GDP ratio and mobilise the targeted tax revenue.
However, Petrobangla officials say the company is unable to pay the huge amount of VAT under its current financial condition.
Earlier, there was a decision of finance ministry on 14 March 2017 to settle Tk 167.78-billion VAT dues of Petrobangla through book adjustment that remained unimplemented.
According to NBR officials, it is their duty to take punitive action against non-compliance of any taxpayers such as freezing bank accounts to realise dues.
In case of Petrobangla, nothing could be done taking uninterrupted supply of fuel oil into consideration.
Following non-compliance, the large taxpayers unit (LTU) under VAT wing sent a letter, dated July 28, to Petrobangla chairman.
In the letter, LTU commissioner Wahida Rahman Chowdhury requested the company to take necessary steps to pay the arrears by arranging allocations from finance division.
Preferring anonymity, a senior Petrobangla official says the entity is unable to pay the arrears under its current financial condition as it sells fuel oil at lower prices than that of its purchasing prices as per tarrif set by the Bangladesh Energy Regulatory Commission (BERC).
"We've written to the ministry seeking allocations to pay the dues to the NBR. Petrobangla representatives also attended several meetings with the NBR on this issue," he told the FE.
The official admitted that the entity has suspended submission of returns as it is unable to pay VAT with returns.
When contacted, finance secretary Abdur Rouf Talukder, however, declined to speak on this issue.
LTU commissioner Ms Chowdhury said the decision on book adjustment was made by the ministry high-ups to pay the NBR's undisputed arrears worth Tk 167.78 billion.
The decision has remained unimplemented while the NBR is crippled with the burden of the large amount of arrears, she continued.
Ms Chowdhury also questioned the action plan of Petrobangla to resolve the long-pending arrears that are increasing daily due to non-payment of VAT.
She says Petrobangla has submitted applications every month since December 2020, seeking time extension of return submissions.
Official sources said the suspension of VAT return submissions had started just after the NBR scrapped the VAT rebate facility of Petrobangla on fuel oil imports.
The NBR cancelled the VAT rebate claim of Petrobangla worth Tk 32.01 against LNG (liquefied natural gas) import for the January 2019-November 2020 period by issuing an order.
Later, the provision has been incorporated in the Finance Act-2021.
As per the NBR data, import price of LNG stands at Tk 31.53 per cubic metre.
According to Petrobangla, the amount of value addition is Tk 4.45 a cubic metre. VAT is applicable to import price at a rate of 15 per cent and value addition of LNG stands at Tk 5.73.
However, Petrobangla sells compressed LNG at the BERC-fixed subsidised rates of Tk 4.45 per unit in the local market and pays Tk 0.55 in VAT on the sales price.
For this reason, the actual VAT rate stands at 1.54 per cent due to sales of the item at a lower than import price.
The LTU estimates that the payable VAT by Petrobangla becomes negative by Tk 4.17 a unit if rebate is allowed.
As per the VAT and Supplementary Duty Act-2012, VAT rebate is applicable only if the VAT rate remains 15 per cent at all stages of the supply chain.
Businesses will not get rebate in case of payment of VAT at rates lower than 15 per cent.
The VAT rate of LNG becomes lower than 15 per cent due to sales of the product at prices lower than the imported price, according to the LTU analysis.
Officials said the total amount of arrears with Petrobangla was Tk 218.01 billion until June 2021.
As per a recent decision of a meeting, Petrobangla paid Tk 4.82-billion VAT on a lump-sum basis on 16 June 2021.
Officials say such a large amount of dues is a major barrier to achieving revenue collection target.
The target has been set projecting tax collection from some major sectors like Petroleum, cigarette and mobile phone.