Diesel tax lowered, now wait for price fall

The government has slashed import duties on two key essentials – diesel and rice – by over 10% in a move to tame soaring commodity prices that have hit the country's people hard, even more so those in the limited-income group.

The Internal Resource Division under the Ministry of Finance issued two separate statutory regulatory orders in this regard on Sunday.

With the reduction, the duty on diesel imports comes down to 22.75% and that of rice to 15.25%.

Fuel oil price hike has been one of the most discussed issues in the country that have further fuelled the already high inflation, causing people to fall into grave distress. And with the slash in import tax on diesel, which accounts for about 73% of the total fuel consumption in the country, by about one-third, the government aims to give some relief to the people.

The tax cut has created an opportunity to reduce costs of transportation, irrigation, and other services that rely on diesel. But, the question remains whether prices of those services and products that have already increased due to the increase in diesel prices will come down at the end, or even if they do, will that be proportionate to the reduction in import cost.

Nonetheless, import tax on other fuel oils e.g. petrol, octane have remained as before, which is why the owners of petrol and octane-run vehicles will not get benefitted from the tax cut.

Bangladesh Petroleum Corporation (BPC) Chairman ABM Azad told The Business Standard, "We have not yet taken any decision on reducing the price of diesel. This is an important issue. The government will take a decision on this matter. The BPC will make a decision as soon as it receives a directive from the government."

As a record hike in fuel prices on 5 August by the government triggered severe criticism from people across the board, the high-up in the government promised to reduce the fuel prices. The prime minister also recently assured the people of reducing fuel prices in the domestic market once they drop in the global market.

Meanwhile, the 10% cut on regulatory duty on rice imports is likely to result in a Tk3 fall in the price of 1 kilogram of imported rice, said Shohidur Rahman Patwary, vice-president of the Bangladesh Auto Major Husking Mill Owners Association. As a result of this, prices of locally-produced rice and paddy also will come down by about Tk3, he told TBS.

Apart from sedans or SUVs, public transports, and all types of freight transports are operated using diesel. Following the recent hike in diesel price, fares of those transports have already gone up, and subsequently prices of almost all commodities have surged.

For example, the container depots involved in the handling of import and export goods have already increased fare by 25% in case of export and by 35% in case of import. The new diesel tax cut naturally raises the question of whether they will reduce the fares.

Mohammed Hatem, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), told TBS that ICDs should naturally reduce container handling charges due to government tax cuts. 

"We will soon write to them in this regard," he said.

When contacted, Bangladesh Inland Container Depots Association (Bicda) Secretary General Ruhul Amin Shikder told TBS that how much the ICD charges will come down will depend on how much the government reduces the price of oil per litre.

"ICD owners should also consider the extent to which ICD charges can be reduced. This is because even if the price of diesel has increased by 42%, we have not been able to increase the charge by the same amount to adjust the additional cost," he, however, said.

Consumer Association of Bangladesh President Ghulam Rahman told TBS that since the government has reduced tax on imports, the BPC should cut diesel prices, otherwise the tax cut will not have any positive impact at the consumer level.

On 5 August, when the Energy and Mineral Resources Division hiked the diesel price by 42.5% and octane price by 51%, BPC Chairman ABM Azad told the media that the BPC was profiting Tk25 from per litre of Octane and Petrol while digesting a loss of Tk6 in each litre of diesel.

At that time, the Platts rate for per barrel of diesel was $124.63 which is now $147 per barrel.

BPC officials with anonymity told The Business Standard that the corporation comes into break-even if the Platts rate of per barrel diesel reaches at $118.

"Despite some profit in Octane and Petrol, BPC is still incurring losses even after the latest price hike as diesel accounts for 72% of the country's total consumption," they said.   

The government has increased the diesel price by Tk34 to Tk114 per litre, octane by Tk46 to Tk135 and petrol by Tk44 to Tk130 per litre. The price of kerosene was also increased by 42.5% to Tk114, in the across-the-board raise.

At present, around 34% tax is levied on the imports of liquid fuel. Apart from this, an additional 15% VAT is imposed at the distribution level and another 2.5% VAT is levied at the business level.

Under this tax regime, the government earns around Tk10,000 crore and even more in revenue from the liquid fuel sector every year.

According to NBR data, the government received Tk11,590 crore in import taxes from petroleum products against its import value worth Tk45,062 crore in FY 2021-22. 

In 2019-20 and 2020-21, the BPC's payments to the national exchequer amounted to Tk14,123 crore and Tk15,046 crore, respectively, according to the corporation's budget report.

On top of this, an additional Tk5.2 is added to the price of each litre of fuel in the form of various charges in the existing pricing method.