Overvaluation to inflate MRP, undervaluation to deflate VAT

Edible-oil companies allegedly submit different data on production of cooking oils by refining imported crudes to have maximum retail price (MRP) inflated and taxes down-rated.
Sources have said they are providing varied data of value addition to refined oil to government regulatory bodies-particularly to the National Board of Revenue and Bangladesh Trade and Tariff Commission.
Such differences in data are either causing miscalculation of the maximum retail price of the essential commodity or loss of revenue to public exchequer.
The companies have shown value addition to edible oils ranging from 18 per cent to 20 per cent to BTTC that fixes MRP of this and other commodities.
On the contrary, they have declared value addition ranging from 0.16 to 16 per cent to the VAT authority that determines payable amount of VAT on the basis of the declaration.
Lesser value addition by company reduces tax liability while higher value addition results in fixation of higher price, according to findings that come at a time when edible-oil prices veritably rose sky-high.
However, industry-insiders say value addition should be at least 20 per cent for manufacturing a product to enable a company survive with the gross profit of the same rate.
Despite the two government entities under the Ministry of Finance and the Ministry of Commerce having such data, the authorities appeared reluctant to crosscheck and find the actual value addition.
Essential Commodity Price Monitoring Cell (ECPM) of BTTC fixes prices without scrutinizing the companies' financials and production data furnished in the VAT returns.
And the VAT authority collects revenue calculating payable VAT on the basis of abnormally lower value addition as furnished by the companies, without taking initiative to cross-match the data the companies have provided to BTTC.
Available data analysis by the FE writer has found signs of cooking the books on part of the local manufacturing companies in their bid to doge actual tax as well as to delude government authority into setting higher MRP at consumer level to maximise profits.
This correspondent has found gross mismatch reviewing data of VAT returns of the edible-oil manufacturers as well as industry sources.
Currently, BTTC and NBR are not reconciling the value-addition data of the cooking-oil companies, resulting in loss of tax-revenue or miscalculation in MRP that rips off consumers.
Although VAT officials suspect that the government is not receiving its due VAT from edible-oil manufacturers, they had little effort to collect data from BTTC and crosscheck the value-addition figures.
"VAT collection could have increased manifold if the NBR could collect revenue on the basis of value addition declared by the companies to BTTC for fixation of MRP," says one revenue expert.
On the other hand, consumers could purchase the essential at much lower prices if the BTTC could set the price on the basis of value-addition declaration to the VAT authority by the manufacturing companies.
An alleged tug-of-war between the entities under the two different ministries, MoC and MoF, is deemed behind the loss on both sides and helping industries to maximise profits as well as deprive government exchequer of due tax.
The government has formed the ECPM at BTTC sans any representative of the NBR although the tax authority has records of financial transactions and production costs.
The tariff commission fixes minimum prices of edible oils at consumer level where value addition plays a major role. The commission has fixed prices without crosschecking the financial details of manufacturing companies which are provided in the VAT returns.
On the other hand, VAT officials also have accepted the lower value-addition declaration-even a peanut 0.16 per cent-of edible-oil companies for long without reviewing data from BTTC.
Value-addition-determination process includes the difference between sale price and production cost, depreciation and labour cost, even gross profit, apart from raw materials.
VAT return consists of import, export, sale, profit and other requisite financial transactions of a company. Businesses need to submit VAT returns every month to their respective VAT zones as per the VAT and Supplementary Duty Act 2012.
Insiders in edible-oil companies as well as industry experts say at least 20-percent value addition to products is required for manufacturing companies to sustain and continue production by earning profits.
Shafiul Athar Taslim, Director for finance and operations of TK Group, mentions that the edible-oil companies need to invest on machinery, manpower, pet bottles etc to refine the essential. "At least 18-to 20-percent value addition is a prerequisite for sustaining and continuing industry operation with a minimum return."
Preferring anonymity, a senior VAT official said lower value addition by the companies was addressed by NBR high-ups recently and the mismatch would be resolved soon.
"Value addition may vary slightly company-wise as they have different types of agreements on bulk import, seed crushing, pet-bottle supply etc," he said.
On the issue, the VAT-implementation wing of the NBR recently instructed its field-level VAT officials to bring consistencies in declaration of value addition to edible oils.
On MRP quandary, the VAT official, however, wondered how it is possible to conduct price analysis without considering the financial data furnished in the VAT returns or not having an NBR representative on the committee.
The government has set Tk 174 for a litre of soybean oil as MRP on August 13, 2023, by discounting Tk 5.0 from the previous rates due to decline in the international prices of crude cooking oils.
This correspondent has reviewed the value addition of several companies as declared in the VAT returns. Value addition by the oil-refining companies has huge lacunae-the lowest 0.16 per cent to the highest 16 per cent-between the companies.
Corporate and Regulatory Affairs Director of City Group Biswajit Saha said value addition could vary three to four percent, not more, on the basis of a company's capacity to refine efficiently.
From declarations in VAT returns it has been found that two large corporate taxpayers---Shabnam Vegetable Oil Industries Ltd and Bangladesh Edible Oil (BEO)---have declared value addition at 3.38 per cent and 12.37 per cent respectively on account of their bulk supply.
However, value addition for pet bottle of refined edible oil of BEO has been declared at 15.95 per cent for one-litre followed by 15.97 for two- litre, 15.84 per cent for three-litre, 15.70 per cent for four-litre and 16.26 per cent for five-litre bottled soybean oil.
City Edible Oil Ltd has declared value edition at 2.73 per cent on its bulk supply of soybean oil. However, value addition for bottled soybean oil was declared 14.56 per cent, 16.14 per cent, 14.43 per cent, 13.74 per cent and 14.06 per cent for one-to five-litre pet bottle respectively.
Meghna Edible Oil Limited has declared value addition for bulk supply of refined edible oil at 3.34 per cent per tonne. For pet bottle ranging one to five liters, it has declared value addition at 3.71 per cent, 3.73 per cent, 3.70 per cent, 3.75 per cent and 3.77 per cent respectively.
S Alam Super Edible Oil has shown 1.46-percent value edition for per- tonne bulk supply while for pet bottle ranging from one, two, three and five liters at 0.18, 0.16, 0.16 and 0.14 percent.
VOTT Oil Refineries Ltd and Bay-fishing Corporation Ltd declared value edition for bulk refined soya bean oil 3.30 and 2.55 per tonne.
Bashundhara Multi-food Products declared value addition at 7.61 per cent for one-litre pet bottled refined soybean oil while 7.53 per cent for two-litre, 6.95 for three-litre, 7.66 for five-litre and 7.54 for eight-litre bottles.
Sena Edible Oil Industries declared value addition at 8.87 per cent for one- litre pet bottle followed by 9.96 per cent for two-litre, 10.67 per cent for three-litre, 10.98 per cent for five-litre and 11.57 per cent for eight-litre oil. For bulk supply, the company has declared 9.37-percent value addition to refined soybean oil.
Declared value and wastages for Crude Degummed Soybean Oil (CDSO) manufacturers have also remained different company-wise.
City Seed Crushing Industries Ltd declared Tk 85 per kg on production of 168-kilogram CDSO while per-kg lecithin at Tk 150.
Sonargaon Seed Crushing Mills Ltd produced 1000.25-kg oil from 7694-kg soybean seeds. Declared value of per-kg CDSO is Tk 122.61 and value of per-kg lecithin has been declared at Tk 2.50.
Mr Saha of City Group said value addition by edible-oil companies varies due to installation of advanced refinery machinery, lower wastage in the manufacturing process, and purchase agreements with international suppliers of crude oil.
He, however, notes that value addition between the companies may vary maximum four to five per cent.
He has refuted the allegations on taxing and pricing. He says, "The VAT authority conduct audit of the statements of the companies where all details are available."
Deputy Chief of BTTC Mahmudul Hassan said the edible oil was exempted from payment of VAT for few months so its import-export coefficient was not been collected that time.
He acknowledges that the pricing committee does not have NBR representatives but they are present on National Price Fixation Committee.
"The BTTC fixes the price after weighted average of import volume of crude oil. But it is not aware whether the companies get back or could adjust the15-percent VAT that they have paid at import stage," he says.
Dr Mostafa Abid Khan, former member of BTTC, has said reconciliation of VAT and customs data is imperative to assess the actual MRP at consumer end.
"We started the assessment on determination of actual consumer prices in 2010-11 though there was no such system to compel businesses to follow the price," he said.
Input-output coefficient of the company consists of the details about the amount of a company's production and use of raw materials.
Mr Khan says international price of crude oil, letter of credit (LC)-opening data of Bangladesh Bank, in-bond and out-bond reserves have to be checked for determining value addition.
The VAT-implementation wing of the NBR recently held a meeting with field-level VAT officials across the country following a recent fall in collection of VAT in the current financial year compared to that of previous FY.
The government offered VAT exemption on soybean oil in different phases last year in a bid to rein in its price on the wayward local market.
NBR data show revenue collection from edible oils has dropped in recent years due to tax exemption offered for facilitating consumers.
In July last, the NBR collected Tk 347.8 million in VAT from sales of edible oils. In FY 2021-22, the NBR collected Tk 3.43 billion VAT despite offering VAT waiver for two months of the year.
Country's annual demand for edible oils is around 2.5 million tonnes. Most of the demand is met by importing and refining crude soybean and palm oils.

[email protected]