Large taxpayers: Tobacco drives VAT growth amid dull economic trends

Despite a slowdown in the broader economy, value-added tax collection from large companies, particularly in tobacco and beverages, recorded strong growth in the first half of the 2025-26 fiscal year.

By contrast, VAT from sectors such as banking, mobile phone operators, certain construction materials and consumer goods remained modest, while revenue from the cement sector fell by nearly 20%.

VAT growth is measured between corresponding periods of two fiscal years. In FY25, collections were subdued amid mass uprisings and political instability, creating a low base for comparison.

Experts said higher tax rates, particularly on tobacco and beverages, combined with the low base, largely explain the strong growth. They added that the low base should have produced broader-based gains. The fact that this has not happened across most sectors suggests the economic slowdown has not yet eased.

Business leaders echoed that view, saying investment and consumption remain cautious as they wait for an elected government and greater political stability to restore confidence.

26% VAT growth from 109 LTUs

According to the Large Taxpayers Unit–VAT (LTU-VAT) under the National Board of Revenue (NBR), VAT collection from 109 LTU-listed companies rose by around 26% year-on-year during July-December. During the period, total VAT collection stood at Tk59,000 crore, of which just over Tk40,000 crore came from these 109 companies. 

This means more than two-thirds of total revenue came from LTUs, with over half generated by three tobacco firms, almost entirely from two British American Tobacco Bangladesh entities.

LTU data show that VAT collected from three cigarette companies stood at Tk21,231 crore between July and December, up Tk6,783 crore, or 47%, from the same period a year earlier.

A senior NBR VAT official, speaking on condition of anonymity, told The Business Standard that the cigarette sector was a key driver of revenue growth, aided by increased monitoring by the LTU-VAT office.

The official said the rise was driven by increases in tobacco prices and supplementary duty, along with policy changes. The same factors applied to the beverage sector, he added.

However, the official said this pace of growth is unlikely to continue in the coming months.

British American Tobacco Bangladesh's latest financial statements show cigarette stick sales fell by about 28% year-on-year between July and September, even as VAT payments increased.

Speaking to TBS, a BAT Bangladesh spokesperson said, "The tobacco sector in Bangladesh is currently subject to an effective tax burden of around 83% of the maximum retail price, up from about 76% following the sudden increase in excise in January 2025 interim budget. As a result of this, the net available for legit manufacturers has significantly gone down. The cigarette sector has consistently provided double digit revenue growth year on year [with the exception of 1/2 years].

"Last fiscal year, the revenue growth was only 4-5%. Hence, without looking at half year to half year revenue growth, the NBR should sit with relevant stakeholders and discuss on a long term fiscal road map. For the cigarette industry that would ensure industry sustainability and consistent revenue growth for the NBR."

Pharma 23%, beverage 34% growth

According to LTU-VAT data, the top VAT-paying sectors after tobacco include four mobile phone operators, five gas distributors, 18 pharmaceutical firms, 17 banks, electricity distributors, and companies in soap, water supply, print and varnish, and nine cement firms.

VAT collection from four beverage companies rose by 34% in the first half of the fiscal year, while the pharmaceutical sector recorded growth of about 23%.

Md Zakir Hossain, secretary general of the Bangladesh Association of Pharmaceutical Industries, said July to December is typically a strong growth period for pharmaceutical companies, describing the rise as normal, but added that the rate would not be sustained in the coming months.

Cement VAT drops 20%

Sectors with weaker growth blamed the continued economic slowdown. VAT collection from the cement sector has been declining for the past 18 months and fell by 20% year-on-year in the first half.

Md Shahidullah, former vice-president of the Bangladesh Cement Manufacturers Association, said falling demand was the main reason, citing a sharp slowdown in infrastructure development that also reduced demand for steel.

He said momentum could return after elections and the formation of a new government, but meaningful recovery is unlikely within the next six months and may only materialise in the next fiscal year.

3.46% VAT rise from banks

VAT collection from the banking sector rose by just 3.46% during the period.

Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank, said the low growth reflected service disruptions at several banks and declining deposits.

"While a few banks are doing well, most are not," he said, adding that economic recovery would depend on a credible election and a smooth political transition.

"Once momentum returns to the economy, revenue collection will also rise," he said.

Snehasish Barua, a chartered accountant and director of SMAC Advisory Limited, told TBS that because last year's VAT collection was weak, stronger growth should have been recorded under normal conditions.

"The absence of that growth in several sectors shows the economy has not regained the expected momentum, while growth in some sectors is largely driven by higher taxes," he said.