VAT from big companies up 26% in FY24 amid rising prices

In a remarkable feat, the revenue authorities collected Tk74,000 crore in value added tax from 109 companies under its large taxpayer unit (LTU), marking a 26% increase from the previous year.

This surge was primarily driven by the rising prices of gas, electricity, cigarettes, and other essential commodities, according to officials of the National Board of Revenue (NBR).

They said the collection of Tk5,000 crore in arrears from Petrobangla, a part of long-overdue payments, contributed to this unprecedented growth.

Besides, the NBR's success in resolving disputes and collecting dues from mobile phone operators and banks through legal channels also played a crucial role in this revenue uptick.

The LTU's value added tax (VAT) collection saw a growth of 12% in FY23 and 6% in FY22.

Md Shamsul Islam, commissioner of LTU-VAT, told The Business Standard that the increase in gas and cigarette prices, regular growth coupled with inflation, and a significant addition of VAT through audit and dispute resolution contributed to the robust growth.

Additionally, the arrear collection of Tk5,000 crore from Petrobangla also helped, said he commissioner.

He said last year's growth rate is the highest ever in the history of the LTU-VAT office, which was formed in the early 2000s. "Before this, the highest growth was about 21%."

The head of the LTU-VAT office further stated that even without the arrear amount from Petrobangla, the revenue growth is about 17%, which is also a significant rate considering the last two fiscal years.

The tobacco industry is the highest VAT-paying sector in the government exchequer, accounting for about half of the total collection of the LTU office.

In the FY23 budget, the government significantly increased cigarette prices, which helped generate over Tk5,000 crore extra from two large companies, bringing the total to over Tk35,000 crore.

The collection of disputed amounts from mobile phone companies and banks through legal processes also contributed to the growth. Moreover, due to the gas price hike, growth of VAT from the gas sector surged by 189% in FY24.

The LTU-VAT office currently oversees the VAT payments of the companies that each account for Tk5 crore or more annually. A total of 110 companies from 37 different sectors currently fall under the purview of this office.

Tobacco pays highest VAT

According to the NBR, the tobacco industry is the primary contributor to the large taxpayers' units, with an overall VAT growth of 16% from the two companies. 

A senior official of the LTU office told TBS that out of the three units listed in that office, two belong to British American Tobacco Bangladesh Limited. 

In FY24, approximately Tk32,000 crore worth of VAT came from BATB alone, said the official. The remaining amount was contributed by Japan Tobacco International Limited. 

This newspaper attempted to get an opinion from BATB, but the company declined to provide any official comment.

In the last budget, the government further increased tobacco prices and supplementary duties, aiming for the NBR to collect an additional Tk6,000 crore in FY25.

Other top VAT contributors in LTU

According to the LTU-VAT office, the next largest VAT contributors are units in gas, mobile phone, medicine, banking, electricity distribution, beverage, cement, and warehouse industries. The Bangladesh Telecommunication Regulatory Commission is among the top ten.

The revenue authority collected over Tk11,000 crore from the five units in the gas sector last fiscal, making it the second highest contributor. With about 16% growth, the third-largest contributor is the mobile phone companies, amounting to nearly Tk11,000 crore.

Shahed Alam, head of regulatory affairs at Robi Axiata Limited, told TBS that mobile operators paid VAT for investment on 2600 megahertz of spectrum and equipment they made last fiscal. 

"Additionally, about Tk600 crore was paid through dispute resolution, and inflation has also played a role. These factors have contributed to the satisfactory growth in VAT collection from this sector," he added.

The government increased supplementary duties on talk time and internet usage, as well as the price of mobile SIMs, aiming for good growth for the current fiscal year. However, Shahed Alam is not optimistic about seeing significant growth from this sector despite the tax hike.

He said, "Recently, we experienced a countrywide internet blackout that hampered our business. Additionally, ongoing inflationary pressure may shrink this sector's business. If the mobile operators' business suffers, revenue collection may not grow at the expected rate."

Meanwhile, revenue growth from 17 banks listed with the LTU office amounted to over Tk3,600 crore Last fiscal. Syed Mahbubur Rahman, managing director of Mutual Trust Bank Limited, said, "Banking transactions are increasing daily, and VATable services have expanded, which is why the VAT growth in the banking sector has been robust."

Degrowth in 10 sectors 

Despite the overall robust growth in VAT collection from large entities, NBR data shows that at least 10 sectors, comprising 28 companies, were unable to grow their business, impacting VAT collection from those sectors. 

For instance, Unilever Bangladesh Limited's VAT decreased by over 4% in FY24 compared to FY23.

Mohammad Zaved Akhtar, managing director at Unilever Bangladesh, told TBS, "Due to price hikes for various reasons, the country's consumption of fast-moving consumer goods (FMCG) decreased by about 9%. Although we were in a better position, our business also declined by over 3%, which impacted the VAT."

Besides Unilever, Bangladesh Telecommunication Regulatory Commission (BTRC), and businesses in hotel, cement, oxygen, ceramic, and water supply sectors also experienced poor performance, which impacted VAT collection.