NBR asks power division not to raise electricity price after new VAT act enforcement

The National Board of Revenue has requested the power division not to increase electricity prices after the new VAT act comes into effect to keep the burden VAT on consumers unchanged. 
The revenue board sent a letter to power division secretary in the past week requesting the division to take seven measures, including declaring the current retail electricity price as the new retail price under the new Value-Added Tax and Supplementary Duty Act 2012, which would come into effect from July, 1 2017.
Many fear that the new law will push cost of living, including expenditure on electricity, as flat 15 per cent VAT will be imposed on all goods and services with a few exceptions. 
The revenue board said that the power division might need to pay less VAT without changing the electricity price at consumer-level although the new law would raise the rate of VAT on the product as the division would get rebate on VAT paid in different stages. 
Consumes now pay 5 per cent VAT on the price of electricity. 
Officials said that the revenue board would incur a loss of more than Tk 2,000 crore in VAT from the power sector as the tax authority would need to pay back the amount to the power sector companies under the division in rebate. 
The power division should not increase the price of electricity just on excuse of increased VAT rate, they said, adding that 15 per cent VAT would not increase burden on consumers if the division fixed the electricity price considering the rebate system. 
Otherwise, they said, the consumers would need to bear additional cost for electricity. 
Receiving VAT rebate will also reduce the amount of subsidy the government gives to the sector, they said. 
Under the existing VAT law of 1991, power generating companies do not get rebate on VAT which they pay at the rate of 15 per cent on purchase of raw materials including gas, oil and coal as the sector enjoys VAT exemption in production stage and reduced VAT rate in distribution stage. 
According to the law, businesses do not get rebate if it enjoy exemption in any stage of supply chain. 
The officials said that the existing law increased the overall burden of VAT on consumers as they had to pay VAT at a rate of 5 per cent directly and another 15 per cent indirectly. 
They said that the government might fix the maximum retail price of electricity with 15 per cent VAT at the existing level in the new VAT regime. 
In that case, consumers will pay the same price of electricity as the maximum retail price would include the VAT, the officials said.
For example, under the existing law, a consumer pays Tk 9.45 for a unit of electricity including Tk 0.45 as 5 per cent VAT on the retail price of a unit of power, Tk 9, the revenue board said.
If the government set the current price (Tk 9.45) as the new retail price, consumers will not face any additional burden of VAT as the retail price includes VAT. 
Though the company will have to pay Tk 1.23 as VAT on the price, it will get additional amount as rebate as they have earlier paid VAT at higher amount on the purchase of raw materials for generating electricity. 
The cost of production is higher than the maximum retail price as the government sells electricity at subsidised rate. 
The revenue board said that the power division would have to take seven measures to achieve the goals. 
The measures include receiving rebate maintaining VAT related procedures at production and distribution stages, taking online business identification number or e-BIN for all units by June 30 and maintaining new accounts system under the new law to obtain the benefits, the letter said. 
It also requested the division to instruct all units in the power sector for taking necessary measures in this connection.

 

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