The National Board of Revenue (NBR) has decided to impose Value Added Tax (VAT) on unprocessed tobacco in a bid to offset the recent decline in its revenue earning from the sector.
The board has taken the decision in a meeting recently, against the backdrop of a significant fall in revenue collection from tobacco sector in the current fiscal year (FY), 2019-20.
In July-August period, the Large Taxpayers Unit's (LTU) revenue collection from tobacco sector dropped by Tk 8.50 billion or 32 per cent compared to that of the corresponding period last year, according to the meeting minutes.
However, in a surprise move the Board in the middle of the last month slashed the supplementary duty (SD) rate by 5.0 per cent.
Following the shortfall, the NBR, however, recently held the meeting with its field-level VAT commissioners and representatives of various tobacco companies.
In the meeting, chaired by the NBR Chairman Md Mosharraf Hossain Bhuiyan, the board has taken some decisions to increase revenue collection from tobacco sector.
Following suggestions of the tobacco companies, the NBR has decided to request the Ministry of Health to consider opinions of the tobacco product producing associations before finalising the National Tobacco Policy 2019.
In the meeting, the NBR also decided not to assign particular VAT officials to supervise revenue collection from the tobacco companies for a long period in a bid to avoid scopes of possible unholy alliance.
It has been learnt that an unholy alliance between some VAT officials and representatives of the tobacco companies is one of the major causes of revenue loss from the sector, sources said.
In the meeting, the NBR chairman instructed the VAT officials to strengthen their monitoring and drive to check printing and use of fake band-rolls.
The NBR will also take steps to ensure transparency in account maintenance process of the tobacco companies.
The NBR member (VAT policy) Abdul Mannan Shikder, in the meeting, said the VAT policies were framed cautiously to help reduce tobacco consumption and, at the same time, collect tax at high rates from the sector.
The NBR member (VAT implementation and IT) Jamal Hossain instructed its field-offices to monitor cigarette paper import and purchase on a regular basis to ensure proper revenue collection from the sector.
Officials said a number of importers of commercial cigarette paper remain traceless.
Chairman of the British American Tobacco (BAT) Bangladesh Golam Mainuddin, Max Lobachev of the Japan Tobacco International (JTI) and representatives of the Abul Khair Tobacco Company as well as the VAT commissioners from Dhaka, Chattogram, Rangpur and Cumilla, among others, were present in the meeting.
Unprocessed tobacco items, sold to the processors, have been enjoying VAT exemption facility since FY 2017-18.
Officials said the VAT structure for low-tier and medium-tier tobacco should be revised to remove the existing inconsistencies in their prices.
They said sales of low-tier cigarettes have increased due to the large price gap between low- and medium-tier cigarettes.
The JTI representative suggested the NBR increase the price slab of low-tier cigarettes, and minimise the price gap between low- and medium-tier cigarettes to achieve revenue target from tobacco sector.
The BAT chairman said the government should discuss the National Tobacco Policy 2019 with the tobacco companies before preparing it, as some provisions of the law may create complexities.
Talking to the FE, VAT officials in the field offices said some five local tobacco companies in Rangpur faced closure, as they failed to cope with the competition.
In Cumilla, VAT collection from the Abul Khair Tobacco has also dropped significantly, they added.
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