FBCCI seeks withdrawal of VAT on utility bills

The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) in a report, to be submitted to the government soon, has proposed scrapping all kinds of Value Added Tax (VAT) on utility bills for manufacturing sectors. 

The apex body has also suggested that a tax identification number be considered as the licence for investments instead of obtaining a trade licence. 

Besides, the FBCCI also has demanded discontinuation of double taxation in the form of tax at source and VAT at source, which are finally adjusted.

The withdrawal of all duties, VAT and supplement duty if any from all export products and services, including all inputs whether they are imported or locally produced, is another proposal placed in the report.

VAT registered manufacturing units should be exempted from advance tax payments, the FBCCI said.

The FBCCI has formulated a handbook suggesting measures needed to cope with post-LDC challenges when many incentives for exporters will no longer be available. The paper titled "Sustainable development 2021-2026 & beyond" advocates for offering fiscal benefits to local export-oriented industries right now.

Sources at the FBCCI said the report will be formally handed over to the government soon.

Sources close to the formation of the report said they prepared it mainly focusing on the export sector. But fiscal benefits have also been proposed for industries in other sectors.

The government is currently offering cash incentives and other facilities to exporters, but many such benefits will no longer be available after the country graduates to a developing nation.

Local entrepreneurs believe that there is now no alternative but to reduce the cost of doing business to maintain Bangladesh's competitiveness in the world of exports. 

So, the proposals for at least 10 fiscal benefits the FBCCI is formally going to place before the government's department concerned are all logical, they note.

"We have proposed the fiscal benefits for all productive sectors alongside the export-oriented ones," FBCCI Adviser Manzur Ahmed, who was engaged in preparing the report, told The Business Standard. 

Mentioning that no time limit has been set in the report on when such facilities should be given to businesses, he said, "But it does not mean that we can wait till 2026. The government should provide us the facilities as early as possible so we can work on enhancing our competitiveness."

Currently a 5% VAT is levied on various utility bills. Businesses, on the other hand, have to pay 3%-4% in advance tax against imports. In addition, advance income tax is deducted in various sectors during imports.

But, those who export 80% of their production do not have to pay any VAT, duty or income tax, be it during imports or at the production stage. At present, only 0.5% tax source is payable on export value. They also do not have to pay VAT on utility bills.

Apart from them, industrial manufacturers and other types of exporters have to pay a 5% VAT on utility bills.

However, representatives of exporters who are enjoying VAT waiver say because of various conditions, most exporters cannot avail this facility, meaning that they have to pay VAT.

Mohammad Hatem, executive president at Bangladesh Knitwear Manufacturers & Exporters Association (BKMEA), told TBS that even if 100% of exporters are exempt from VAT, there is a requirement to get a certificate from the VAT office concerned, which puts them in trouble. As a result, exporters are supposed to get this facility, but more than 50% of them cannot.

He agreed with most of the FBCCI's proposals to address the post-LDC challenges.

At present, the VAT department of the National Board of Revenue (NBR) does not have any exact figures on the amount of VAT levied on utility bills from such manufacturing industries. 

But a senior official at the VAT department told TBS that the amount would not exceed Tk400-Tk500 crore a year.

All facilities proposed not only for a few export sectors

The government now offers extra benefits to those who export 80% of their manufactured goods. The FBCCI in its report has proposed adjustments in this case. 

More and more manufacturing sectors in Bangladesh are now linked with an export chain as finished products as well as backward linkage of various export items. Therefore, a policy bias to promote only 80% of export production units should be discarded by expediting policy cohesion on manufacturing for export and domestic markets by integrating them to global supply & value chain with sectoral cluster based bonded warehouses and other fiscal facilities, according to the report.

The apparel sector is the prime beneficiary of such facilities. For example, the sector enjoys the back-to-back LC facility that allows it to source raw materials and accessories on credit. Again, garment exporters can also import raw materials free of duty under the bond facility, which many other export sectors are deprived of.

Manzur Ahmed said the garment sector is given so many benefits that others do not get. Everyone needs to have equal benefits.

Mohammad Hatem also thinks that there should be equal facilities for all export sectors, not just the apparel sector.