Further reduction of taxes on some Internet services is likely to come into effect from December as consumers are not getting the benefit of the cutback.
The reduction of VAT by 10 per cent for International Terrestrial Cable (ITC), International Internet Gateway (IIG) and Nationwide Telecommunication Transmission Network (NTTN) is underway with the recommendations from the government high-ups, people with knowledge of the matter said.
In the budget for the current fiscal year, the government slashed the Value Added Tax (VAT) rate to 5.0 per cent from 15 per cent for internet services at the consumer stage.
However, VAT rates remain unchanged to 15 per cent for other relevant service providers in four stages.
It has been found that despite the cut in the VAT rate for consumers, service charges remained the same for them.
None of the internet service providers reduced the monthly charges for consumers even after enjoying the tax benefit.
According to an estimate, the ministry of finance has found Tk 8.0 billion losses in revenue collection this year due to the reduction of the VAT.
Finance ministry officials said according to the VAT authority's estimate further reduction of VAT on ISPs would cause Tk 13 billion losses in revenue collection in a year to the public exchequer.
They said the NBR opposed the VAT exemption from ISPs as there is no such facilitates in other countries.
Rather, the NBR proposed reinstating the 15 per cent VAT on all ISPs to create a level-playing field, the officials said.
In a recent letter to the finance minister, posts, telecommunications and IT minister Mustafa Jabbar addressed the issue and sought further VAT exemption from ITC, IIG and NTTN so that internet service charges at the consumer stage go down.
Talking to the FE on Wednesday, Mr Jabbar said as the VAT rates remained unchanged to 15 per cent, operating cost of the internet service providers increased.
"The service providers cannot claim the VAT rebate after paying 15 per cent due to truncated-base of VAT at a rate of 5.0 per cent on the consumer stage," he said.
According to VAT law-1991, businesses can claim the rebates on inputs of products and services if they pay VAT at 15 per cent flat rate.
He said the finance minister, in a recent meeting, assured businesses of reducing the VAT for other services from next month.
Responding to a question about such a tax benefit ahead of the national election, he said the proposals have no connections with polls.
The finance minister recently assailed the National Board of Revenue (NBR) for offering so many tax exemptions.
Finance ministry officials said the tax authority had sent a position paper to the ministry, opposing the tax benefit for ISPs.
The tax benefit would hurt its revenue collection performance this year, they said.
However, the telecommunications minister ruled out the possibilities of revenue loss due to the proposed tax benefit.
The tax authority was getting 1.0 to 2.0 per cent of VAT after rebate from internet services, Mr Jabbar said.
He said VAT collection would rather increase after setting the truncated-base of VAT at 5.0 per cent in all stages.
It has been found that tax benefit for the businesses hardly benefits the consumers, but maximises profits of industries.
