The National Board of Revenue (NBR) has reinstated the VAT exemption for the international oil companies on local production and supply of gas, condensate and other petroleum products.
Although their contract with the government has such a provision to enjoy the waiver, VAT at a rate of 15 per cent was imposed after the 2012 VAT and supplementary duty act came into force last year.
The NBR on Sunday issued a statutory regulatory order (SRO) exempting VAT with retrospective effect from July 01, 2019 imposing some conditions.
The order made the submission of financial statements with monthly amount of exempted VAT to the field-level VAT office of the NBR mandatory to enjoy the exemption.
Talking to the FE, a senior tax official said the VAT has been withdrawn to uphold the spirit of the production sharing contract between the government and IOCs.
The IOCs have been enjoying the exemption since 1993 to keep the prices of gas affordable to the consumers, he added.
"We held a series of discussions with Petrobangla, IOCs, including Chevron, in this connection last year," he said.
The production sharing contract between the government and IOCs stipulates the VAT exemption facility.
The contract is scheduled to expire in 2029. With the implementation of the new VAT law, the NBR had scrapped all its regulatory orders, including the one for exempting IOCs from tax payment.
Following the withdrawal of the facility, the Ministry of Power, Energy and Mineral Resources last year requested the tax authorities to reinstate the previous order so that it cannot clash with the contract.
Petrobangla buys gas and condensates at the government fixed prices from the IOCs in the light of sales and purchase agreements.
The official said although the Petrobangla will have to shoulder VAT on behalf of the IOCs operating in Bangladesh, the burden would, in fact, fall on the companies.
Currently, Tullow and Chevron are the two IOCs that have such contracts.
Earlier in a letter to the NBR, Petrobangla chairman said it would be difficult to pay the VAT on behalf of IOCs if the foreign firms sent invoices adding the payable consumption tax.
The Bangladesh Energy Regulatory Commission fixed the tariffs of gas at consumers' stage taking the VAT exemption on IOCs into its consideration, it said.
In another letter last year, the US-based Chevron drew the attention of the state-owned Petrobangla over the imposition of VAT on the IOCs.
The government signed the contract with Chevron in 1995, two years after offering the VAT exemption facility.
The official said the NBR feels the imposition of 15 per cent VAT might require adjusting the gas price upward at the consumer-level.
Such an imposition may also result in the violation of contract and discourage foreign investment in Bangladesh, he added.
Some 60 per cent of the local gas supply is contributed by the IOCs.
Meanwhile, another SRO has offered waiver to the ONGC Videsh Ltd from payment of advance income tax on import of machinery and goods required to conduct oil and gas exploration activities at offshore block SS-04 and SS-09 at the Bay of Bengal.
Income tax wing of the NBR on Monday issued the SRO, saying the machinery and goods could not be transferred or sold locally.