Turnover tax on beverage may jump eight times

The government is planning to impose a high turnover tax on the carbonated beverages industry to squeeze out more revenue from this sector, according to finance ministry officials.

The existing turnover tax rate is 0.60% for the carbonated beverages industry, which is likely to be fixed at 5% from the next fiscal year, officials said, adding that the advance income tax paid for raw material imports will be counted as the minimum tax.

In addition, the government also plans to realise more revenue from cigarettes through a price increase of about 12.5% and impose another 1% supplementary duty for lower-end cigarettes, said officials.

According to experts and sector leaders, the turnover tax hike may put a burden on small and new companies that are not profitable yet. Besides, new companies may not enter this sector due to such a high turnover tax.

Seeking anonymity, a chief financial officer of a leading beverage company, told The Business Standard (TBS) that big companies are not paying turnover tax as they are making a profit and submitting their returns under corporate tax rates applicable to them.

But the turnover tax hike move may create a scope for the companies to increase products' prices further, he feared.

Pran-RFL Group Director Kamruzzaman Kamal told TBS, "Being one of the large companies in this sector, we are paying regular tax, not a turnover tax."

He also mentioned that most of the large beverage companies are paying regular taxes.

Kamruzzaman urged the government to revise the raw material duty structure as every beverage company is facing challenges due to raw material price hikes stemming from the high dollar exchange rate and energy prices.

According to the Bangladesh Beverage Manufacturers' Association, this sector has an annual turnover of about Tk8,000 crore and some major market players have already invested about Tk10,000 crore. Of them, Akij Food and Beverage invested more than Tk800 crore. 

Coca-Cola franchise International Beverage and Abdul Monem Ltd invested Tk716 crore and Tk290 crore respectively for manufacturing beverages.

Transcom Beverage invested Tk756 crore, Globe Soft Drinks Tk565 crore, AST Beverage Tk384 crore, Pran Beverage Tk485 crore, Partex Beverage Tk229 crore, Sajeeb Corporation Tk140 crore and Meghna Group Tk336 crore.

The country's beverage sector has employed nearly 3.5 lakh people at production and distribution levels.

More revenue from low-end cigarettes

The National Board of Revenue (NBR) is now eyeing tobacco products including cigarettes as an easy way to collect revenue. 

The price of low-tier cigarettes (10 sticks) may be increased by 12.5% to Tk45 from the existing Tk40 and the supplementary duty on this segment, which currently holds about 73% of the entire market share, may also be increased by 1% to 58%. 

Prices may increase for cigarettes in other segments as well. However, existing supplementary duties on these segments may remain unchanged.

Sources at the Ministry of Finance said the NBR aims to collect an additional Tk6,000 crore from tobacco products.

The finance minister may make such a proposal through the Finance Bill while placing the next budget, sources said.

There is pressure from the International Monetary Fund (IMF) to increase the tax-to-GDP (revenue contribution to GDP) ratio, as a condition for the $4.7 billion loan programme. Local anti-tobacco groups have also been demanding an increase in tobacco taxes.

Experts, however, believe that apart from increasing the prices of cigarettes, other steps should be taken to control the use of tobacco products.

Former NBR chairman Muhammad Abdul Majid told The Business Standard, "Increasing the prices of cigarettes will generate revenue for the government. But to reduce tobacco use, non-tariff barriers need to be effectively created in addition to this. Otherwise, the revenue of the government will increase but the consumption of tobacco products will not decrease."

At present, cigarettes in the market are divided into four tiers on which the government fixes prices and a supplementary duty is levied as ad valorem tax. 

The existing price of mid-tier cigarettes (a pack of 10 sticks) may be increased from Tk65 to Tk67, a pack of upper-tier to Tk113 from Tk111 and a pack of premium-segment to Tk150 from Tk142. Supplementary duties existing at these three levels may remain unchanged.

About Tk29,600 crore of value-added tax (VAT) has been collected from tobacco products in the 2021 fiscal year. NBR officials expect it to cross Tlk32,000 crore in the current fiscal. 

As a result of fixing the new prices and bringing changes in the supplementary duty structure, more than Tk38,000 crore can be collected from this sector in the next financial year.

Besides, the supplementary duty on liquid nicotine, transdermal nicotine or similar products which have recently become popular, may increase by 150% and the duty on electronic cigarettes and similar devices and parts may increase by 212%.

British American Tobacco Limited holds a major share of the cigarette market in the country followed by Japan Tobacco International Bangladesh and United Dhaka Tobacco Company Limited.