Prices of medicines and petroleum products will now include VAT, meaning consumers will be protected from sudden price hikes as the prices are set by government agencies concerned.
The decision taken by the VAT Division of the National Board of Revenue (NBR) on Tuesday has been made effective from July 1 this year.
Under the existing NBR regulations, nearly every company collects VAT from consumers upon purchase of their goods and services. However, VAT on some products such as tobacco goods is included in the retail price.
According to the NBR directive, companies operating under the Bangladesh Petroleum Corporation (BPC) will have to pay VAT on diesel, kerosene, octane, petrol and furnace oil, through inclusive prices set by the government.
For medicinal products, companies will have to pay the VAT through retail prices set by the Directorate General of Drug Administration. Pharmaceutical companies will not be allowed to charge consumers any additional VAT throughout the manufacturing and retail levels.
Several NBR officials said the new system for collecting VAT was made to lower the burden of taxes placed on consumers by offering rebates in the newly imposed VAT law.
“Medicines are life-saving necessities, while petroleum products are essential commodities. The prices inclusive of VAT on these two types of products will be regulated to keep the prices stable. Consumers will not have to pay any additional VAT at the retail level,” said VAT Division First Secretary Hassan Muhammad Tarek.
The government imports unrefined petroleum and then refines it through the Eastern Refinery. A 15 percent VAT is imposed on processed petroleum at the refinery level.
After refinement, the petroleum is then distributed to oil companies such as Padma, Meghna, Jamuna and the Standard Oil. At this level, an additional 2 percent VAT is then imposed by the NBR.
The whole process is regulated by the BPC, but the prices of refined petroleum products are set by the Ministry of Power, Energy and Mineral Resources.
Commenting on the issue, BPC Director (Finance) Shahidul Alam said: “The government sets the prices of petroleum goods and it would be easier for the consumers if the prices are VAT inclusive.”
Under the Value Added Tax Act 1996, a 15 percent VAT was imposed on medicinal drugs. It was hiked by additional 2.4 percent at the retail level under the new VAT act imposed during the current fiscal year.
The NBR however added that pharmaceutical companies will have a chance to get a refund on the total VAT amount.
Meanwhile, under the recently imposed Value Added Tax and Supplementary Duty Act 2012, the companies must pay VAT through the prices set by the Directorate General of Drug Administration.
The NBR has also directed the pharmaceutical companies to submit documents on tax payment and audit in the new VAT law, to keep the prices in check.
Secretary Md Shafiullah from the Bangladesh Drug Industry Association said: “As the prices of medicines are set by the government, there is no chance of a sudden price hike.
“However, the tax rebate process is complicated and might pose a risk of harassment to pharmaceuticals.”