‘Levy VAT on edible oil only at import stage to keep market stable’

The Bangladesh Trade and Tariff Commission has recommended that the National Board of Revenue (NBR) reforms its three-tier tax structure on edible oil to a single-tier structure to keep the edible oil market stable.

In a letter sent to the NBR the tariff commission has suggested levying value-added tax (VAT) only at the import stage of edible oil exempting it at the other two stages of the supply chain – manufacturing and trading. 

The commission argued that the government's revenue collection will not be affected if the rate of tariff VAT is fixed at Tk16,000 on each metric tonne of edible oil.

Importers and marketing companies of edible oils said they do not have any issues regarding the prevailing three-tier VAT structure. However, dealers and distributors face difficulties in calculating the amount, leading to complexities in realising VAT from them.

To remove this complication, Bangladesh Vegetable Oil Refiners and Vanaspati Manufacturers Association recently put forward a proposal before the Bangladesh Trade and Tariff Commission. In their proposal, the trade body demanded imposing Tk15,000 tax on per metric tonne of edible oil at the import stage instead of collecting it at three different stages. 

However, the tariff commission, after analysing the proposal, found that the revenue collection will not be affected if the tax rate is fixed at Tk16,000.

When asked about this, Biswajit Saha, director of City Group, told The Business Standard that the imposition of Tk16,000 VAT on each metric tonne of edible oil at the import stage only will not create any difficulty.

Instead, this will remove the prevailing complications regarding VAT collection on edible oil, he added. 

It has been learnt that prices of unrefined soybean oil and palm oil in the international market have been on the rise from the latter part of the last year, which has led to a Tk8 hike on the price of per litre of soybean oil in the local market. The manufacturing companies have raised the price of palm oil as well.
Prices of edible oils in the global market are still high.

The tariff commission in its letter mentioned Bangladesh usually imports around 8 lakh tonnes of unrefined soybean oil every year, while the import of unrefined and refined palm oil is around 12 lakh tonnes.   

Around 30 percent of the imported unrefined soybean oil is marketed in packaged form while the remaining 70 percent is marketed in loose form. Meanwhile, 10 percent of the imported palm oil is packaged before marketing, while the remaining 90 percent is marketed in loose form. 

The country has an annual demand for around 20 lakh tonnes of cooking oil.

The tariff commission analysed the amount of revenue in accordance with the recommendations of traders and that in the existing VAT structure based on the highest and lowest price rates of edible oils in the international market during the last several years.

The commission found that the revenue collection will not decrease even if the highest price of unrefined soybean oil is calculated at $850 and that of unrefined palm oil at $800.

Therefore, the tariff VAT rate might be fixed at Tk16,000 per tonne at the import stage only to bring stability to the market price and supply chain of edible oil in the local market, the commission proposed.  

Sources at the NBR said the revenue board is working on the proposal of the tariff commission.

Mentionable, Bangladesh Vegetable Oil Refiners and Vanaspati Manufacturers Association in its application informed the commission that it is difficult to keep the price of this essential cooking ingredient stable in the existing VAT structure.

Mentioning that prices of cooking oils often fluctuate in the global market, the association said this rise and fall in oil prices causes divergence in the amount of VAT being paid to the government. 

It is extremely difficult to adjust VAT at the distribution and trading stages, it added.

The NBR has levied 15 percent VAT on all three stages -- import, production and distribution -- of soybean and palm oil. The importers also have to pay 5 percent advance tax on imports. In addition, traders have to pay 5 percent VAT at both trading and distribution stages.