The government has decided to impose a 15 per cent VAT on the fare of the country’s first metro rail from FY2024-25, which may hurt limited-income people who use the flexible transport system to travel quickly by avoiding the never-ending traffic jams of Dhaka city.
The VAT inclusion proposal will be placed before parliament in the upcoming national budget session, according to finance ministry officials involved in the budget preparation process.
They also said that Prime Minister Sheikh Hasina gave consent to the proposal of the National Board of Revenue (NBR) recently. With the move, NBR plans to collect an additional Tk 72 crore in a single fiscal year.
Officials say such a move would not raise metro rail ticket prices and NBR only wants to collect VAT on the existing fare.
However, the Dhaka Mass Transit Company Limited (DMTCL) — a government-owned company responsible for operating Dhaka Metro Rail — now operates the mass rapid transit system without any profit. On top of that, the service needs a subsidy from the government to make ticket prices affordable.
The 15 per cent VAT will either force DMTCL to raise the fares or it will need more subsidies, which will increase the expenditure burden on the government amidst the ongoing fund crunch.
So, without providing funds, after a 15 per cent VAT imposition, the minimum distance metro rail ticket price will be Tk 23, up from the existing Tk 20, and the maximum distance ticket price will be Tk 115, up from Tk 100.
Earlier, NBR decided to withdraw the tax exemption enjoyed by the metro rail authority from July this year. To this end, the revenue board sent a letter to DMTCL, and further discussions were held to reduce the VAT rate. But NBR did not budge from its decision.
As per the law, a 15 per cent VAT applies to both AC and non-AC railway services. As metro rail is fully temperature-controlled, a 15 per cent VAT applies to this service, says NBR.
But DMTCL claims that as there is no class for metro rail and metro rail passengers, no tax is applicable on metro rail passenger services.
In its letter, NBR said that along with continuing to provide money for the huge development activities, graduation of the country from LDC and raising the tax-GDP ratio to the desired level, the exemption benefits given by taking into consideration the capacity of various sectors are being gradually withdrawn, i.e. the area of exemption is being narrowed.
NBR had provided a VAT exemption on metro rail ticket prices last year because the service was not fully operational.
DMTCL in a previous letter told NBR that the governments of different countries subsidise the metro rail companies to meet the operating costs. In line with that, DMTCL requested the Finance Division to provide a subsidy of Tk 1,000 crore for the operation and maintenance of MRT Line-6, the public transport of Dhaka's rich and poor.
Citing the opinions of experts, the company further said that Dhaka city sees a loss of about Tk 40,000 crore annually due to huge traffic congestion.
Institute for Planning and Development (IPD), a planning and development research and policy analysis organisation, has also strongly opposed the imposition of 15 per cent VAT on metro rail fare by NBR.
In a media statement recently, IPD said that this move will result in a 15 per cent increase in metro rail fares and that may put off regular users among Dhaka's low- and middle-class. It also demanded the immediate withdrawal of the decision to impose 15 per cent VAT.
IPD also said that the existing metro rail fares in Dhaka city are already higher than many other Asian countries such as Kolkata, India, Lahore, Pakistan, Jakarta, Indonesia, Malaysia, and Kuala Lumpur.
