Economic slump drags down growth in VAT collection from big cos

The growth in revenue collection from big companies has slowed down in the first half of the current fiscal year, a trend that experts and businessmen attributed to policy issues and economic downturns.

The value-added tax (VAT) collection from the country's 107 large companies saw an overall growth of 9.7% in July-December period of the 2022-23 fiscal year, which was around 13% in the corresponding period of the 2021-22 fiscal year, according to the National Board of Revenue's Large Taxpayers Unit (LTU) data.

"The nearly 10% growth in large taxpayers' VAT collection occurred mainly due to the increase in commodity prices and inflation. It is not a normal growth," Farid Uddin, a former member of the National Board of Revenue (NBR), told The Business Standard (TBS).

At the beginning of the current fiscal, the government had set the country's GDP growth at 7.5%, which was revised down to 6.5% in December 2022. However, according to the World Bank's latest projection, the country's GDP growth in FY23 is likely to be 5.2%.

"The increase in the prices of goods in the international market and the devaluation of the local currency have led to the increase in the VAT collection. But the growth was expected to be higher, which did not occur due to the country's economic decline," Farid Uddin said.

"People's incomes and consumption propensities have fallen, as well as investment. As a result, the growth that needed to happen did not happen," he added.

Admitting that the revenue collection growth did not match its target, NBR Chairman Abu Hena Md Rahmatul Muneem, at a recent event, attributed the slowing trend of growth to international factors, rather than national ones.

However, there has been an abnormal growth in VAT collection from some sectors including the gas sector, mainly due to the increase in tariffs which put pressure on consumers.

Petrobangla, the state-owned natural gas company, showed a whopping 54% growth in VAT payment in the first six months of this year.

The overall VAT collection target of the NBR for the current fiscal is around Tk1,37,000 crore, of which a little over Tk53,000 crore has been collected in the first half.

The LTU-VAT office target for FY23 is more than Tk66,000 crore and it collected some Tk27,265 crore from the companies listed in this office so far this year.

To achieve the target, revenues have to be collected at a much higher rate in the coming months, which is considered practically impossible in the current economic situation, ‍according to people concerned.

More than half of the VAT collected by the LTU comes from two tobacco companies – British American Tobacco Bangladesh, the largest taxpayer of the bunch, and United Dhaka Tobacco Company Limited. 

According to NBR data, revenue collection from these two companies has grown by a little over 6% in the last six months. Mobile telecom sector companies' VAT growth is below 4%. Six companies in the insurance sector and some banks also showed negative growth.

Of the 20 pharmaceutical companies, six have shown negative growth while four have shown nominal growth.

According to officials of large companies, apart from the economic downturn, some policies are responsible for the VAT collection not increasing at the expected rate.

Sheikh Shabab Ahmed, head of External Affairs at British American Tobacco (BAT) Bangladesh, told TBS, "Volume loss in premium and high-tier segments due to excessive tariff increase along with the proliferation of smuggled tobacco brands during the post-budget period contributed to lower VAT generation."

"Evidently, we are losing volume and the government is losing revenue due to smuggled cigarettes. From the market study, we assume these brands are estimated to impact roughly TK700 crore revenue for the government in the current fiscal year if not obstructed immediately," he added.

Grameenphone pays the highest amount of VAT after British American Tobacco Bangladesh to LTU. But the company's VAT growth in the first half of the fiscal year was just over 1%.

"Grameenphone's contribution to the national economy slowed down because of an arbitrary ban on SIM sales from June to December in 2022," Khairul Basher, head of communications of GrameenPhone, told TBS. 

Besides, people have reduced spending on mobile phones and increased spending on daily necessities, which is one of the reasons for the reduction of VAT from this sector, he added.

Robi Axiata Limited showed a 10% growth in VAT payment. Shahed Alam, head of Regulatory Affairs of Robi Axiata Limited, said the growth would have been around 14% without the economic slowdown.

Six insurance companies pay VAT to LTU, whose combined VAT collection has decreased by almost 5% this year compared to the same period of the previous year.

Ahmed Saifuddin Chowdhury, managing director and chief executive office of the Bangladesh General Insurance Company Limited, told TBS, "As the letter of credit (LC) opening has declined, VAT collection from this sector has decreased."

According to NBR sources, out of 107 large companies, 21 have shown negative growth in the first six months of this fiscal year, and 17 have shown marginal growth – between zero and 6%.

The list of companies that made negative or slight growth in VAT payment includes the United Dhaka Tobacco Limited, Rural Electrification Board, Bangladesh Power Development Board, Linde Bangladesh Limited, Banglalink, Teletalk Bangladesh Limited, and Standard Chartered Bank Limited.

However, the collective VAT growth of nine companies in the cement sector is around 61%.

According to the cement industry, the increase in the prices of raw materials and a good amount of import VAT in the first half of the financial year is the reason for this growth.