The National Board of Revenue (NBR) has scrapped tax rebate facility on import of liquefied natural gas (LNG) by the Petrobangla.
The NBR's VAT Policy Wing issued a directive on Monday, explaining the reasons behind withdrawing the facility.
The board said the VAT law does not permit the Petrobangla to enjoy VAT rebate on import of LNG, as the entity imports the fuel at high prices and sells at low prices.
The NBR's actual receivable VAT went to the negative territory by Tk 5.51 billion due to the VAT rebate, amounting to Tk 31.03 billion, from January 2019 to September 2020, according to official data.
On the other hand, actual VAT liability of the Petrobangla on LNG dropped to 1.54 per cent instead of the ideal rate of 15 per cent for selling the fuel at a reduced rate with the government subsidy.
As per the VAT and Supplementary Duty (SD) Act 2012, businesses are not entitled to claim VAT rebate, if they pay VAT at a lower or reduced or truncated-based or specific rate than the ideal rate (15 per cent).
The Petrobangla imports LNG at higher prices and pay VAT on it at import stage.
The NBR officials said the Petrobangla is claiming VAT rebate on the import stage, but the entity is actually selling LNG at a reduced rate in the local market.
In that case, the actual VAT liability stands below 15 per cent as far as LNG sales prices are concerned.
The Petrobangla imports LNG at Tk 31.53 per cubic feet. As per the agency's input-output coefficient, its value addition is Tk 4.45 per unit.
At the supply stage, its VATable price should be Tk 35.98, whereas the state-owned entity sells LNG at Tk 4.45 per unit after conversion. The selling price of the fuel is much lower than its import price.
The NBR collects VAT to the tune of Tk 0.5550 per cubic feet at local supply stage instead of Tk 5.40 (35.98x15 per cent), as per the NBR data.
On the other hand, VAT at import stage is Tk 4.73, on which the Petrobangla is claiming the rebate.
With the rebate on the import stage VAT, the revenue board's VAT collection from LNG import would reach a negative territory or Tk -4.175 per cubic feet.
Talking to the FE, a senior official of the Petrobangla said scrapping the VAT rebate facility is unjust, as the entity is supplying gas at a reduced rate than its purchase price as per the tariff, fixed by the Bangladesh Energy Regulatory Commission (BERC).
In case of withdrawal of the rebate, the Petrobangla will be forced to request the government to increase gas prices, which, in turn, will raise electricity prices.
He said some 70 per cent of the imported gas is being supplied to the power sector, while 10 per cent for production of fertiliser.
"It is the government's decision to ensure power for all," he added.
Officials said the NBR issued the directive following a query of the Large Taxpayers Unit (LTU) under the VAT Wing.
Analysing the Petrobangla's VAT return, the unit has found that the company has received Tk 31.03 billion refunds from January 2019 to September 2020.
Talking to the FE, the LTU commissioner Wahida Rahman Chowdhury said the Petrobangla has long been supplying gas at lower prices than that of the import prices.
The agency has been paying 15 per cent VAT on it, which has reduced the tax rate in real sense.
As per the BERC, rate of gas at the consumer stage is Tk 4.45, and VAT at a rate of 15 per cent or Tk 0.5550 is included with it.
However, the actual rate of VAT is 1.54 per cent, considering the import prices of LNG.
The government has been providing subsidy at Tk 36.93 per cubic feet gas for production of electricity.
The LTU's revenue from the Petrobangla went to negative territory by Tk 5.51 billion due to providing VAT rebate to the agency, Ms Rahman added.
So, the LTU requested the NBR to scrap the rebate facility, enjoyed by the Petrobangla.
The unit has already issued final demand notice to cancel the VAT rebate worth Tk 10.07 billion for January-October 2019 period as per the VAT Law 1991 and also given final tax assessment notice as per the VAT Law 2012.
The LTU also started legal proceedings to issue demand notice cancelling Tk 20.96 billion VAT rebate, enjoyed by the Petrobangla during March-September 2020 period.
The unit also held a meeting with the Petrobangla high-ups on November 5.
In the meeting, the Petrobangla authority decided that the agency will not claim any VAT rebate from now on, until the government takes a final decision regarding the matter.
