3 years ago

Middlemen blunt tax waiver impact on prices of essentials

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Benefits of tax exemptions on essential commodities hardly reach the end-users as international price fluctuations, hoarding, production and availability of products work as major deterrents.

Officials at the National Board of Revenue (NBR) have said they are losing a significant amount of revenue every year because of tax exemptions offered to various types of products and services. But a section of middlemen, not the consumers, are reaping the benefits of tax waivers.

However, there are no complete data on the actual loss caused to the national exchequer because of tax exemptions.

According to the board officials, it is difficult for them to quantify the losses under the existing manual system of maintaining data on tax collection.

Earlier, the World Bank (WB) in its study estimated that the government lost 2.5 per cent of its Gross Domestic Product (GDP) because of tax exemptions granted to various sectors.

NBR officials said the amount would be even much higher now as the areas of tax waivers have expanded over the years in the wake of industrialisation, protection offered to farmers and execution of many large development projects in the public sector.

The NBR has long been offering tax benefits on major essential goods including rice, onion, sugar, edible oil, and pulses by issuing Statutory Regulatory Orders (SRO), whenever it sees any price spiral of those.

But any downward revision of tax has little impact on the price situation, although both the government departments concerned and the private sector players very often turn to the tax authority for a cut in tax to tame the price spiral.

According to tax officials, currently there is no full tax waiver on any essential commodity except pulses, chickpeas and lentils.

Currently, import of rice is subject to payment of 25.75 per cent tax, onion 10 per cent and edible oil 19 per cent while the tax incidence on sugar is around 60 per cent. The government is now contemplating reducing duty on rice to 15 per cent as the earlier tax cut has had no impact on the prices of the main staple.

NBR officials said they did it to protect the farmers, rein in prices in the local market and adjust taxes on essentials.

They also alleged that a section of traders, importers and businesses were taking advantage of tax breaks for years, forcing the common people to pay high as usual.

On January 7 this year, the NBR cut taxes on import of rice from 62.5 per cent to 25.75 per cent in a bid to keep its prices stable in the local market.

But such a major tax cut put little impact on the prices of rice which has declined by only 2.0 per cent at the consumers' level so far since the issuance of the SRO.

According to the customs wing data, the NBR lost Tk 1.43 billion in revenue for offering the concessionary rate on import of rice until February 23, 2021.

From January 7 to February 23, about 282,328.28 tonnes of rice were imported by paying 25.75 per cent in import taxes with assessable value worth Tk 9.91 billion. It could be Tk 1.43 billion more if the NBR had kept the import taxes unchanged at 62.5 per cent.

Onion importers also enjoyed special exemptions (full waiver of import tax) from September 22, 2020 to January 06, 2021 after India had stopped export of the commodity.

Some 244,568 tonnes of onion were imported during the period with the assessable value at Tk 8.22 billion causing a revenue loss of Tk 410 million.

Ghulam Rahman, president of Consumers Association of Bangladesh (CAB), said the supply situation along with international price fluctuation was responsible for the recent price hike of essential commodities.

"I don't think the government has never tried sincerely to control the prices of essentials through proper adjustment of tax rates," he added.

He said still the 25 per cent tax on import of rice was quite high for rice importers, compared to the 2.0 per cent in 2017 when a large volume of rice was imported to stabilise the market.

Tax adjustment was required not only to control the prices in the local market but also to protect interests of the farmers, he added.

Mr Rahman said intensive monitoring on the supply chain could have prevented the middlemen from taking any undue advantage of the tax reduction.

On February 17, the government fixed the maximum retail price (MRP) of soybean and palm oil following a hike in their prices in the local market.

However, the consumers are alleging that the retail shops are not following the MRP and charging high, citing the price hike in international markets.

Edible oils are now selling in the local market at prices higher by nearly 40 per cent than in last year.

The prices of edible oil have increased both at the wholesale and retail levels. The price of soybean oil was below Tk 3,500 per tonne in December. It increased by Tk 1,000 in three phases.

The government fixed the prices of soybean oil at Tk 107 per litre (open) at the mill gate, Tk 110 for distributors and Tk 115 per litre at the retail level.

But traders are selling the commodity at far higher prices, though the FE has analysed the customs data and found the supply situation has been almost normal.

According to the Chittagong Customs House data, about 525,208 tonnes of palm oil imported in the July-January period against 876,435 tonnes in the corresponding period of last year.

About 342,335 tonnes of crude soybean oil were also imported during this period last year. That increased slightly to 367,936 tonnes in the corresponding period of this year (July-January). However, the edible oil prices have been on the rise in the international market in recent months.

Despite enjoying full tax waiver, prices of lentil and pulses increased 10 per cent in a year.

Import of pulses increased to 290,384 tonnes in the first seven months of the current fiscal year (FY) against 179,114 tonnes in the same period of the last fiscal year.

The poultry sector is also enjoying a large-scale tax break. Still the prices of chicken increased 26 per cent in the last one month.

The customs data show about 60,331 tonnes of sugar had been imported until January last against 57,695 tonnes in the corresponding period last year.

Bangladesh Trade and Tariff Commission (BTC) Chairman Munshi Shahabuddin Ahmed, who is convener of the 'National committee for price fixation and monitoring of essential commodities', said the consumers should get the benefit of tax reduction.

Relevant agencies were not following the recommendations on tax reduction as per analysis to bring down the prices, he said.

He said they intensified monitoring at the field-level to check hoarding of commodities or intervention of middlemen in the supply chain.

Dr Ahsan H Mansur, Executive Director of the Policy Research Institute of Bangladesh (PRI), said a neutral taxation system could be devised to adjust the import duties in line with the upward and downward trends of essentials' prices in the international market to avoid the revenue loss.

"Increase of taxes leaves an immediate impact on the market while reduction of taxes takes time to have its impact. Traders cannot be blamed for this as there is a market mechanism to build fresh stocks of goods," he said.

He, however, said reduction of taxes helps minimize the price hike of essentials, especially those dependent on imports.

He said the prices of rice did not come down despite downward adjustment of taxes as wrong information was aired by the government about the production scenario.


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