Turnover tax for tobacco, beverages likely to go up

The government is planning to impose a high turnover tax on the tobacco and the carbonated beverages industries to collect more revenue from this sector, finance ministry officials say.

Currently, turnover tax rate is 1 per cent on tobacco industry which is likely to be hiked to 3 per cent in the upcoming budget for FY24, while a 5 per cent tax rate, up from existing 0.60 per cent, is expected to be imposed on the carbonated beverages industry.

In FY22, the National Board of Revenue (NBR) collected around Tk 28,000 crore VAT from the tobacco sector, which accounts for around 30 per cent of the total revenue collected by the VAT wing.

As a single source of revenue, tobacco is a main sector of revenue collection, and in the upcoming fiscal year, the government plans to squeeze more out of it. In addition, the sector may come under increased surveillance in line with the conditions set by the International Monetary Fund (IMF) as part of its $4.7 billion loan programme for Bangladesh.

The NBR had earlier devised a specific path with revenue measures to collect an additional Tk 20,400 crore VAT in FY24 through four channels, to meet the IMF conditions.

According to the plan, the VAT wing aims to collect Tk 5,500 – Tk 6,000 crore by restructuring cigarette taxation, and turnover tax will be a key source of collecting more revenue from the sector, finance ministry officials said.

Besides, the NBR is also planning to increase the minimum price of cigarettes which will help boost revenue collection.

“Cigarette tax revenues represented more than 11 per cent of government revenues in FY19 or 1 per cent of the country’s GDP. However, since then, cigarette revenues have systematically declined to around 8 per cent of government revenues or less than 0.8 per cent of GDP reported in FY22,” according to World Health Organization (WHO).

The specialised UN agency earlier recommended the NBR to set the retail price for premium tier cigarettes at least Tk 150 with Tk 97.50 supplementary duty (SD) per 10 sticks, up from Tk 142 with 65 per cent SD, followed by Tk 120 for high-tier cigarettes with Tk 78 SD, up from the existing Tk 111 with 65 per cent SD.

WHO also proposed the revenue board to fix the retail price for medium tier cigarettes at Tk 70 with Tk 45.50 SD, up from Tk 65 with 65 per cent SD, and Tk 55 for low-priced cigarettes with Tk 35.75 SD, up from current Tk 40 with 57 per cent SD.