Everyone wants cuts in Value Added Tax (VAT). However, the mobile operators in Bangladesh are reluctant to pay five per cent VAT. They want the VAT rate to be 15 per cent.
The Association of Mobile Telecom Operators of Bangladesh (AMTOB) in a letter issued on 30 June informed the Bangladesh Telecommunication Regulatory Commission (BTRC) and the National Board of Revenue (NBR) that 15 per cent VAT had become effective from 1 July, the first day of the current fiscal, which was five per cent up to that point.
From July 2018, a five per cent VAT was imposed on internet. It was mentioned at the time that the government had taken this initiative to make the internet affordable in order to build Digital Bangladesh.
Officials from some mobile operators, unwilling to be named, said the increase in VAT pressure could push up internet prices. BTRC vice-chairman Subrata Roy Maitra too acknowledged that a 15 per cent VAT rate would increase the pressure on the consumers.
Speaking to Prothom Alo, he said BTRC agreed with the operators in this regard. There could be discussions with the NBR regarding this at the initiative of the Ministry of Telecommunications and BTRC.
Why the return to 15 per cent VAT rate?
Imposition of VAT means an extra charge to the customer in addition to the price of goods and service charges. The operators have to collect this money and send it to the government treasury. An official, who did not want to be named, explained why the mobile operators want to pay 15 per cent VAT instead of 5 per cent.
He said there is no chance of getting rebate from the government in case of 5 per cent VAT rate. Although the declared rate is low, the effective VAT rate much higher. In addition to that, some new conditions have been imposed in this year's budget for the 2022-23 fiscal . Therefore, it is better to go back to the 15 per cent VAT rate.
The rule is that VAT is added every time the product exchanges hands. Suppose an importer has paid 15 per cent VAT on the import of a product. It means that the amount of VAT is Tk 15 per Tk 100. Then he sells the product at a rate of Tk 120. A 15 per cent VAT at this price would be Tk 18. He will deposit Tk 3 in the government treasury keeping the 15 taka that he paid earlier as VAT. Then if the retailer sells this product at Tk 150, then the VAT will stand at Tk 22.5. He will then keep the 15 taka he had given earlier and deposit Tk 4.5 in the government treasury.
There is no scope of getting a rebate at a VAT rate below 15 per cent. The effective rate increases exponentially at such a VAT rate. However, small businesses cannot keep so many accounts for rebate. A low VAT is convenient for them.
Amendments in the budget
There have been some amendments in the finance bill of this year’s budget, which have reduced the chances of operators getting exemption. According to the people concerned, the operators will get proportional discount from now on as per the conditions in the finance bill.
The amount of VAT that operators will pay for the purchase of goods and services will have to be proportional to the rate of 'voice call' and internet 'data' to get an exemption
Since they will not get a rebate at a rate of five per cent VAT on the internet, they are not interested in 5 per cent VAT rate.
Asked about this, mobile operator Robi Axiata’s chief corporate and regulatory officer, Shahed Alam told Prothom Alo that the current financial year's finance law has a provision to cancel VAT rebate or adjustment. This will result in a much higher effective VAT rate, which is impossible to bear. Not only that, the new laws will increase legal complexities regarding VAT.
He further said that for this reason, a 15 per cent VAT has been added on all internet packages as per the relevant provisions of the VAT Act following the standard VAT rate.
The Value Added Tax Act-2012 was legislated to increase the collection of VAT and to ensure fairness and justice in the process. The law also ensured the availability of all types of concessions. The new VAT law was introduced in the country in 2012. However, it was enacted in 2019.
Tk 25 tax per Tk 100
The total tax on mobile and internet in the country was 21.75 per cent before these amendments in the budget bill. This includes five per cent VAT, 15 per cent supplementary duty and one per cent surcharge. The tax on mobile talk time and other services is 33.25 per cent. Now, with the VAT rate being 15 per cent, the total tax burden on the internet has now risen to some 33.25 per cent.
In all, the government will charge Tk 25 per Tk 100 on all services, including mobile talk-time, internet browsing and sending SMS. The mobile operators say that around 55 per cent of the money they earn goes to the government treasury for taxes and fees.
The mobile operators have been saying for a long time that the tax incidence is the highest in Bangladesh. In August last year, the mobile operators, in a presentation, said that the total tax of mobile phone service in Bangladesh is just over 33 per cent, which is 23 per cent in Sri Lanka, 17 per cent in Pakistan, 15 per cent in India and 12 per cent in Afghanistan. However, in Bangladesh, the corporate tax on mobile operators in Bangladesh is some 45 per cent.
Regardless of profit or loss, they have to pay 2 per cent of their total revenue as income tax. Supplementary tariffs are usually imposed on goods and services. However, the government has imposed a 15 per cent supplementary duty on mobile phone services.
People concerned said that the government has chosen mobile phone service as an easy way to collect taxes. Such indirect taxes put more pressure on people with limited income.