Advance tax on fuel oil import likely to go

After increasing the prices of fuel oils and electricity several times, the government is likely to withdraw advance tax (AT) on imports of fuel oils, including petroleum, crude, jet fuels and furnace oils, in the next budget for the fiscal year 2024.

It is thought to be a cushion against the consumers’ burden amidst soaring inflation caused by Russia-Ukraine war and global economic headwinds.

Currently, there is a 5 per cent advance tax on fuel oil imports while the National Board of Revenue (NBR) plans to withdraw it in the upcoming budget for FY24, said finance ministry officials involved with the budget proposal process.

The budget proposals are expected to incorporate thirteen harmonised system (H.S) code related to fuel oils used in power generation, cars, motorbikes, aviation, generators and machines required in agricultural and industrial production.

NBR plans to facilitate the production sector, and cut the government’s subsidy for ensuring uninterrupted electricity supply for home and industrial production as well as controlling inflation.

Rationalisation of subsidies is one of the International Monetary Fund (IMF) loan programme stipulations, and the government has committed to adjusting electricity and fuel prices to reduce the subsidy component.

If the NBR withdraws advance tax, the government’s subsidy on power and energy may be reduced as it spends money on taxes during fuel imports, insiders say.

The government had increased the electricity tariff three times this year by 5 per cent each time and yet that was still not enough to rein in electricity subsidy. The subsidy was increased by Tk 6,000 crore to Tk 23,000 crore in the revised budget for FY23.

Besides, Energy and Mineral Resources Division hiked fuel oil prices by 42.5 per cent to 51.6 per cent in August last year. The price hikes were the highest in 20 years.

Diesel and kerosene prices were increased by Tk 34 per litre to Tk 114 and octane and petrol prices by Tk 46 per litre to Tk 135. Later in the same month, the government cut fuel prices by Tk 5 per litre.

According to the new price, diesel and kerosene is sold at Tk 109, petrol at Tk 125 and octane at Tk 130 at re-fuelling stations. The decision came a day after the NBR cut import duty to 22.75 per cent from 34 per cent.

NBR in the upcoming budget may include petroleum oils and oils obtained from bituminous minerals, crude, motor spirit of HBOC type, other motor spirits, including aviation spirit, for withdrawal of advance tax.

However, advance tax on spirit type jet fuel, white spirit, naphtha, all types of kerosene- type jet fuels and other kerosene, light and high speed diesel oils, as well as furnace oils is likely to go in the next fiscal year.

The proposals were recently discussed at a meeting chaired by Finance Minister AHM Mustafa Kamal and subsequently presented to Prime Minister Sheikh Hasina for approval last week, finance ministry sources said.

Currently, the proposals are being reviewed by the law ministry before its incorporation in the upcoming budget. The budget is scheduled to be placed in the parliament on June 1.

Policy Research Institute (PRI) Executive Director Ahsan H Mansur said that advance tax on fuel oils should have been removed earlier and there should not have any kind of advance tax.

“This is not rational but we slap such tax on imports. The IMF doesn't like it but the NBR does,” he said.

“There should be only VAT on fuel, nothing else. We don’t have fuel in our country, we have to import it. We don't want subsidies, we don't want taxes. Since fuel oil is a widely-used commodity, it is not right to tax it,” he added.

Mansur, also a renowned economist, added that the government should remove all taxes.

M Shamsul Alam, energy expert and senior vice-president of Consumers Association of Bangladesh (CAB), said that they recommended the government form a stabilisation fund with the adjustment of price fall. So that if fuel prices increase in the global market, it can be adjusted from the fund, and if prices decline, it can be given to the fund but the government doesn’t do that.