The National Board of Revenue (NBR) has formed a six-member committee to inquire into the Tk2,054 crore tax waiver granted to British American Tobacco Bangladesh Company (BATBC) by the large taxpayers unit (LTU-VAT), according to an NBR document.
NBR sources said due process of law was not followed when LTU-VAT on 19 August 2021 granted the tax waiver and such a large amount of revenue waiver has never happened before.
Besides, the decision was taken despite mixed opinions emerging from a seven-member committee, they said.
The new committee, formed on 14 August, has been asked to review the legality of supplementary duty and value-added tax waiver to BATBC and submit a self-contained report within 30 working days with a thorough judicial analysis of the matter.
It will probe whether the views of the previous committee were properly incorporated in the final decision on the tax waiver.
A senior NBR official, requesting anonymity, told The Business Standard that the issue of BATBC's tax waiver is highly technical.
"A committee has been formed to review the overall issue. The NBR will take further action based on the inquiry report," he mentioned.
Md Azizur Rahman, company secretary of BATBC, said the matter was settled about three years ago and claimed ignorance of the newly formed committee.
After verifying BATBC's 2016 audit report, LTU-VAT learned that the tobacco company had used over Tk200 crore worth of extra tobacco leaves in its production of cigarettes.
A committee was formed on 29 March 2018 to verify whether the tobacco leaves were made into cigarettes and sold in the market.
According to the committee's report, BATBC indeed produced and supplied more than 1,811 crore cigarettes by using tobacco leaves worth an additional Tk191 crore.
As a result, the government lost Tk2,540 crore in revenue (48% supplementary duty and 15% VAT).
Later, a seven-member committee was formed to issue a demand notice.
However, the final demand notice said the committee could not establish BATBC's production and marketing of additional cigarettes. Due to this, the issue of revenue avoidance also could not be established.
It further explained that due to structural disparities between the annual report and the price declaration form, the overhead cost of tobacco leaf collection was incorrectly grouped with other overhead expenses of the same nature, rather than being attributed directly to the tobacco leaf.
Besides, BATBC deducted VAT at source on receipt of VAT chargeable services and deposited it in the government exchequer.
In view of this, no action was taken against the tobacco company.
How the issues surfaced
According to NBR sources, NBR is investigating allegations of irregularities against LTU-VAT, including issues like interest exemptions and preferential treatment for certain businesses under the Alternative Dispute Resolution (ADR) scheme.
In the course of this investigation, the NBR chairman noticed that British American Tobacco had been granted a tax waiver of Tk2,054 crore without the approval of the revenue board.
In this context, he constituted a high-powered six-member committee to review the matter, with NBR Member Shahidul Islam as convener.
The issue has already been communicated in detail to NBR through a position paper from LTU-VAT.
It said the NBR's approval was not taken when LTU-VAT formed the seven-member committee to review the issue.
Furthermore, despite varied opinions expressed by committee members, the NBR did not grasp the rationale behind the final demand, which resulted in the withdrawal of the revenue demand amounting to Tk2,054 crore.