VAT collection weak from large payers in FY22 despite business recovery

Even though businesses recovered from Covid-19 fallouts in the fiscal 2021-22 and revenue grew 14% year-on-year, VAT collection from 34 large sectors saw a growth of only over 6%.

VAT collection from 13 of these sectors, in fact, fell by 1%-90% year-on-year, while the mobile, banking and cosmetic sectors saw only less than 1% rise.

Different sources pinned the blame on the policies of VAT exemptions for a few top contributors, evasion, unequal treatment in imposing it and a lack of capacity that caused the expected growth in VAT collection from large taxpayer units (LTUs) to stumble in FY22.

The NBR's VAT collection target from LTUs fell short a whopping Tk12,000 crore in FY22 against a target of Tk64,000 crore.

Moreover, top VAT-paying sectors, such as cement, soap, and insurance registered a negative growth when it comes to their contribution to VAT mobilisation.

Seeking anonymity, an official at the LTU-VAT told The Business Standard, "We are now trying to assess the reason behind a lower-than-expected VAT collection from large taxpayers."

There are some valid reasons for lower collection from some sectors, but they cannot find any logic behind a negative growth in cement and some other sectors, he noted.

"We are collecting audit data and other documents from low VAT payers and analysing those," he pointed out.

In FY22, the NBR collected over Tk1,00,000 crore in the form of VAT, while the contribution from large taxpayer units stood at Tk52,433 crore. The mobilisation from three tobacco companies, including British American Tobacco (BAT) Bangladesh, amounted to around Tk28,000 crore with a 3% growth, according to the LTU-VAT.

Tobacco industry insiders say not playing a balanced role in pricing tobacco products is one of the reasons for a poor VAT collection from this sector 

Sheikh Shabab Ahmed, head of External Affairs of BAT Bangladesh, told The Business Standard that around 75% of the cigarette market is occupied by low-priced segments that saw no hike in prices in the last three years. 

So, mobilisation of VAT from the tobacco sector is not yet up to the mark, he said.

With only a Tk1 rise in lower segments in the current fiscal year, he thinks that the situation will remain the same this year as well. 

Dr Muhammad Abdul Mazid, former NBR chairman, told TBS that large companies might be avoiding VAT through different ways that the NBR cannot detect owing to a lack of capacity. 

However, Dr Ahsan H Mansur, executive director at Policy Research Institute said businesses could not fully make a turnaround from the pandemic-induced losses in FY22 because of an economic slowdown to some extent, which led to a lower growth in VAT collection from large companies.

Commenting on the poor collection from the banking sector, he said banks are now going through a bad patch with a slump in profitability.

In FY22, the VAT collection from telecom operators stood at less than 1% year-on-year.

Shahed Alam, chief corporate and regulatory officer at Robi Axiata Ltd said currently, the unique mobile connection penetration stands at 55%, which has remained stagnant for several years. One of the key reasons for the situation is the low adoption of smartphones, still under 50%, by low income people.

Moreover, average revenue per connection of the industry has remained flat for the last three years, having a clear reflection in the government's VAT and tax collection from the industry. 

He, however, hoped that the revenue collection from the sector will see a positive surge in near future through conducive changes in regulatory environment, rollout of new technologies and initiatives to bring the unconnected people under the connectivity umbrella.

VAT collection from two edible oil companies – TK Group's Shabnam Vegetable Oil Industries Ltd and Bangladesh Edible Oil Limited – drastically fell by around 90% because they have been exempted from VAT payments in the face of the volatile oil market. 

On the other hand, the overall collection from nine cement companies stood at Tk386 crore with a 8% year-on-year drop.

Md Shahidullah, first vice-president of Bangladesh Cement Manufacturers Association, told TBS that soaring prices of cement have led to a slump in cement sales. That is why VAT collection from this sector dropped as well in the last fiscal year.