Revenue board plugs hole to stop VAT evasion
Government's revenue authority has issued new directives to check VAT evasion and also simplify the process of business operations of cigarette companies, who, nevertheless, pay a king's ransom to the exchequer.
The Value Added Tax (VAT) policy wing under the National Board of Revenue (NBR), avowedly to plug the hole, defined anew the way of transfer of raw materials, machinery, spare parts or supply of manufactured cigarettes from one unit to another of a same company.
It issued an instruction to all of its VAT offices across the country to follow it, allowing cigarette companies to transfer or supply their products from one unit to another and obtain one VAT registration for relevant wings of a factory.
The directive came into effect from August 31, 2021.
In the budget for current financial year, the NBR has barred the cigarette companies from obtaining central VAT registration along with imposing some new regulations.
If a cigarette-manufacturing company under same ownership has multiple production units, it will have to obtain separate VAT registration for each of the units.
The processes created some complexities on operation of businesses due to unclear method of following it, officials said.
The new directives would check VAT evasion as well as simplify the process of business of the companies.
Under the directive, the cigarette companies will be allowed to operate businesses under one Business Identification Number (BIN) or VAT registration for its factory, leaf- processing unit, depot/warehouse etc.
"As cigarette companies pay all types of taxes at manufacturing stages, they would be allowed to obtain single VAT registration for its relevant units along with factory," it said.
The companies will be able to transfer their machinery, equipment, spare parts from one unit to another by giving declaration of zero VAT and Supplementary duty in a prescribed form of the NBR, it added.
Officials said due to restrictions in central VAT registrations for some companies, including cigarette manufacturers, the VAT is applicable to transferring goods from one unit to another of same companies against their respective BINs.
Absence of any guideline also left field-level VAT officials in a quandary as to whether they should demand VAT and SD from those companies, they added.
On the other hand, there is a scope of evading VAT by shifting goods to other companies concealing actual production data.
In the directive, the NBR said any types of deduction of VAT at source, if applicable, have to be done against supply of products to the leaf-processing, depot, warehouse or other units under the BIN of the factory of the cigarette-manufacturing companies.
"A cigarette-manufacturing company will be able to supply their produced goods in its separate factories to the market from any of its depots or warehouses," the directive says.
In case of bonded-warehouse facility, the company will have to pay applicable duty-taxes on in-bond raw materials to transfer their goods from one factory to another one.
The tobacco companies paid Tk 270 billion last FY as a largest contributor to VAT collection under Large Taxpayers Unit (LTU).
British American Tobacco Bangladesh (BATB) was the highest VAT payer with Tk 249.11 billion paid to the exchequer while United Dhaka Tobacco paid Tk 20 billion.
However, anti- tobacco activists and health experts say financial loss due to consumption of tobacco is much higher than the tax- collection data from the cigarette companies.