Metro rail authorities want VAT waiver till 2032

Dhaka Metro Rail authorities have requested a deferral of value added tax (VAT) on fares until 2032, arguing that an earlier imposition would require replacing the 84 ticket vending machines installed across 16 stations.

A 15% VAT on metro rail tickets was introduced in the current fiscal year's budget. However, metro officials said the revenue authorities are yet to collect it.

They said the VAT amount would need to be added to the current fare to collect this VAT. But the existing ticket machines, worth Tk1 crore each, are not equipped to handle this and replacing them would be both expensive and time-consuming.

Moreover, collecting indirect VAT from the current metro rail fare without raising ticket prices would not benefit the government. Instead, Dhaka Mass Transit Company Limited (DMTCL) would have to pay the VAT from its earnings, requiring an additional government subsidy to cover this amount.

These issues were discussed at an inter-ministerial meeting on 4 July. The meeting included representatives from the Prime Minister's Office, the Ministry of Home Affairs, and the Cabinet Division.

DMTCL Managing Director MAN Siddique requested that no VAT be imposed on metro rail services until 2032, highlighting the complications of collecting VAT. 

He noted that the metro rail operates 196 times daily from 7:10am to 10:14pm, carrying about 3 lakh passengers and saving the public Tk8.38 crore daily in travel time costs and Tk1.18 crore daily in vehicle operation costs.

DMTCL stated that the Dhaka Mass Rapid Transit Development Project (Line-6) is set to expire on 31 December 2025, and that the metro rail is still an "infant industry" in Bangladesh, as it is not yet fully operational.

"Countries around the world, including Bangladesh, provide long-term concessions to all types of infant industries. Therefore, it is appropriate not to impose any VAT on metro rail services," said the metro rail chief.

Showkat Ali Saadi, commissioner at the NBR, said VAT will be collected from metro rail as there is no government decision to exempt it. He assured that NBR will provide the necessary technical support for this.

Other revenue officials present at the meeting noted that under the Value Added Tax and Comprehensive Duties Act-2012, VAT is imposed on metro rail passenger services similar to the railway's air-conditioned public transport. 

However, DMTCL argued that while the railway has passenger classifications, metro rail does not, making it inappropriate to levy VAT on its services.

VAT on metro rail tickets was exempted for one year to facilitate its smooth launch, which expired on 30 June 2024. 

Committee to suggest on VAT

To address the issue, the government has formed a nine-member committee, led by Neelima Akhter, executive director of the Dhaka Transport Coordination Authority, to recommend how to collect VAT from metro rail fares. 

The committee is to submit its report by 28 August. 

The committee will consider the technical and cost implications, the current financial capacity of the public, the operational costs of metro rail, and also public interest in using the service.

Neelima Akhter said the current fare was set based on public affordability and operational costs. However, the government's decision on VAT collection must be followed too. 

Since Metrorail is expected to be profitable by 2034, she suggested a comprehensive study is needed to collect VAT before then.

Md Mahbubur Rahman, additional secretary of the Road Transport and Highway Division, mentioned that projects MRT-1, MRT-5, and MRT-6 are still ongoing. 

"Once these lines are completed, DMTCL's revenue will increase, making it logical to consider VAT collection after the company's non-fare business grows," he added.