Lower consumption eats up VAT revenue

When inflated prices are supposed to bloat up the national exchequer with more revenue collection, inflationary pressure reduces consumer spending on non-essential items causing the slowdown in the growth of value added tax (VAT).

The National Board of Revenue (NBR) saw a 10.59 per cent growth (Tk53,391 crore) in VAT collection at local stage during the July-December period of FY23 compared to the same period last FY. The country had inflation of 8.71 per cent in December last year.

However, the revenue board witnessed a 13.53 per cent growth in VAT collection during the same period of the last fiscal year compared to FY21 when the inflation was at 6.05 per cent.

The official data showed that inflated prices reduced the consumers’ purchasing capacity and discouraged them from spending on non-essential items.

Experts have cited the ongoing global economic crisis, caused by the Russia-Ukraine war, appreciation of US dollar against taka and energy crisis as reasons behind it.

They also say that the price hike put the consumers under more pressure but increased the profit margin of the businesspeople. As some businessmen try to evade taxes and duties, it might cause the slowdown in revenue growth.

According to the NBR data, VAT revenue from major sources including tobacco, telecom sector and sweet sector drastically fall.

In a recent meeting of customs and vat wing, NBR member (VAT Implementation & IT) Moinul Khan presented the data on these sectors and said, “The scenario of revenue collection in sweet and telecom sectors is not satisfactory rather it is disappointing.”

According to the date presented by NBR to the IMF, though around 40-65 per cent supplementary duty is slapped on tobacco apart from 15 per cent VAT and 1 per cent surcharge, Bangladesh earned Tk2,577 crore per month on average last FY from the tobacco sector compared to Tk1,750 crore per month in FY23.

The revenue intelligence data showed that smuggling of tobacco products has gone up in recent months, and revenue has actually dropped even after a hike in tax rates in the budget for FY23.

Listed companies see drop in sales

As per the financial reports disclosed by the listed companies, the large number of companies saw sales drop in the first half of the current fiscal year.

Net profits of Walton Hi-Tech Industries, the publicly-traded electrical and electronics home appliance giant, fell by 97 per cent year-on-year during the July-December period of the fiscal year 2022-23.

The company reported a net profit of Tk14.36 crore in the first half of FY23 while it was Tk446.14 crore in the same period of last fiscal year.

Berger Paints Bangladesh’s net profit dropped by 16 per cent to Tk 68.30 crore in the third quarter (Oct-Dec’22) of its financial year due to higher costs of raw materials impacted by currency devaluation compared to last year.

The publicly-traded multinational company’s net profit stood at Tk68.30 crore in the third quarter of its financial year from Tk81.24 crore.

Also in the first quarter of the fiscal year, as many as 24 publicly-traded profit-making companies have joined the club of loss-making entities in the first quarter (July-September) of FY2022-23 compared to the same period of last fiscal year.

During the same period in FY2021-22, only eight publicly-listed companies were incurring losses. But the number of such companies increased by 200 per cent to 24 between July and September in FY23.

Besides, the board officials claimed that the government’s cautious and strict measures in releasing project funds, increasing letter of credit (LC) margins for luxurious products in the wake of dwindling forex reserves, decreased VAT collection from that projects as well as affected the overall revenue collection.

Inflation raises profit margin of businesspeople

Commenting on the matter, former World Bank Dhaka office lead economist Zahid Hussain told The Business Post, “Last year, Bangladesh witnessed an abnormal growth as the major economic activities were stuck and slower during the pandemic.”

“This year the economic slowdown including reduction of the purchasing power of consumers and decrease in imports might have caused the slowdown in VAT collection,” he added.

“The price hike of commodities put the consumers under more pressure, making a dent in their savings but increasing the profit margin of the businesspeople. The revenue board is yet to collect more revenues from the profit margin,” the economist continued.