Is VAT on metro justified?

City residents had to put up with a lot of hassle in terms of dust, pollution and dug-out roads or overlapping barricaded medians while the first metro rail (MRT-6) was being built. There long delays and the project had dragged on for years, but residents put up with all the problems associated with it in the hope that one day they would ride on this advanced mode of transportation. It promised to be fast, clean and comfortable. In that regard the metro rail service has delivered. To popularise the service, the government made travel by metro rail (MRT) VAT-free. While users of all other modes of public transportation must pay variable rates of Value-Added-Tax (VAT), MRT was exempt from it. It has become more than simply a rail service---a pride of the city.

The national board of revenue (NBR) has decided, in principle that the grace period is now over and intends to levy VAT on MRT fares from 2025, i.e. from next fiscal year. There has been a lot of talk against this but there are arguments for and against this proposed move. People in general are already under tremendous pressure of inflation and cost of everything has gone through the roof and stayed there. The metro service provided much reprieve to the people who had previously had to suffer hours of gridlock on the streets of the MRT-6 route.

That changed with the introduction of the MRT which provided a train every 10 minutes and with fares ranging from Tk20.00 - Tk100.00 have been heaven sent. No more pollution, no more sitting in non-air-conditioned modes of transportation. All this carries a price tag of course. Getting back to the subject of VAT, the NBR has made it clear that all other modes of air-conditioned public transportation are subjected to VAT payment and MRT should not be an exemption. The government for its part has kept the service VAT-free for a year and now intends to levy the same type of VAT it has imposed on other public modes of transportation, on land, water or air.

The VAT law exempted passengers from paying any VAT till June 30, 2024 and this policy is being reviewed. However, given the massive popularity MRT has earned, the revenue authorities should rethink the rate of VAT imposition. According to a report published in this newspaper, it would be more prudent to impose VAT at a staggered pace. Although VAT experts have pointed out that even a 15 per cent imposition would not have a huge impact at passenger level. A Tk20.00 ticket would end up costing Tk23.00 and the highest-value ticket presently costing Tk100.00 would cost Tk115.00.

What is perhaps not being talked about much is the fact that the Dhaka Mass Transit Company Limited (DMTCL) has been giving incentive to passengers to procure their own travel passes that carry 10-year validity and is tied to their national ID (NID). These travel cards are pre-paid and can be topped up any time. More importantly, DMTCL gives a 10 per cent discount to passengers who have registered and procured these passes. Hence, if the government truly believes it must impose VAT at all costs, it should make more effort to popularise travel passes and the only way that can be done is by phasing out ticket vending machines gradually so that people get used to the idea of utilising travel passes. One should not forget that daily usage of the MRT since introduction in December 2022 now averages 300,000 passengers. Hence, any sudden and dramatic change to ticket price should be avoided.

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