Tax cut proposal on furnace oil may get lukewarm response

The government may turn down a proposal to waive tax on import of high-speed furnace oil (HFO) for electricity generation in the upcoming national budget scheduled to be placed in parliament on Thursday next.
Official sources said the National Board of Revenue (NBR) would not be able to consider the plea as the HFO, or furnace oil, is one of the top five revenue-generating products with a contribution of more than Tk 40 billion to the national exchequer.
The Ministry of Power, Energy and Mineral Resources (MoPEMR) has sought the waiver on the excuse that it would save a subsidy worth Tk 5.0 billion per month on electricity generation.
In its proposal to the NBR, the ministry argued that the production cost of HFO-fired electricity would be reduced by Tk 2.738 per unit (kWh) if the customs duty and taxes of around 34 per cent is exempted.
A senior official at the NBR said that the tax exemption on import of furnace oil has been withdrawn in 2020, following detection of imports of the petroleum product for other purposes taking advantage of the waiver.
The power producers, however, get the tax refund when the government purchases electricity from them, he added.
The ministry proposed to consider reintroduction of the tax waiver through issuing a Statutory Regulatory Order (SRO) in the budget for FY 2023-24.
However, the NBR is likely to waive the Advance Tax (AT) on the import of 13 types of fuel oil to resolve complexities in the VAT refund process from the field offices, said an official.
VAT officials said the waiver of AT on fuel oil may not leave any impact on the prices as the NBR usually refunds the taxes to the Bangladesh Petroleum Corporation (BPC).
The Bangladesh Power Development Board (BPDB) depends more on the HFO-based electricity generation, around 33 per cent, due to the gas crisis and volatility in the international market.
Power producers, both public and private, had enjoyed such tax exemption until June 11, 2020 that the government offered to mitigate pressure on power tariffs.
The facility was offered in 2011 to encourage fuel oil-run power plants amid growing demands for electricity. Since then, according to the NBR data, the government lost revenue worth Tk 101.76 billion until withdrawal of the facility.
Officials said the facility has been withdrawn due to substantial increase in subsidies to the power sector in FY 2018-19.
According to a report of the Institute of Energy Economics and Financial Analysis (IEEFA), the amount of power sector subsidies was Tk 80 billion that year.
Import of furnace oil has been showing an upward trend since FY 2015-16. In FY 2014-15, the country imported 0.7 million tonnes of furnace oil that went up to 1.7 million tonnes in FY 2018-19.
In the upcoming budget, the government is set to allocate nearly Tk 350 billion in subsidies for the power sector, one-third of the total allocation worth Tk 1.10 trillion in subsidies.
Executive Director of the Center for Policy Dialogue (CPD) Dr Fahmida Khatun said the government should provide subsidies to the target groups of people such as the poor, farmers and under-privileged ones rather than providing it across the board.
Full waiver of taxes on finance oil would leave an adverse impact on internal revenue collection as the NBR may not find such a large chunk of source, she said.
Dr Fahida further said that it may be a 'double-loss' for the government while the pros and cons of the proposal have to be analysed, she added.

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