The government in its recent proposed budget for the FY 2017-18 imposed a 15 percent VAT on electricity and want it to implement from July 1st of this year. However, negotiations are going on to decide where the VAT will be imposed as it can be imposed either on the distribution companies or directly on the end customers.
Consumers Association of Bangladesh (CAB) is likely to have a meeting on today with National Board of Revenue (NBR) authority regarding this issue. The customers are already paying a 5 percent VAT on electricity and if another 10 percent is imposed at customer level then the price of electricity will rise evidently. But, according to the energy advisor of CAB Prof. Shamsul Alam, hiking the price of electricity in such a way is firmly against the prevailing power act.
Earlier on 1st June of 2017, the Finance Minister A M A Muhit has proposed the national budget for the FY 2017-18 where he proposed a 15 percent VAT on electricity. Now, discussions are going on to decide which party is going to pay the extended VAT.
Prof. Shamsul Alam said that, setting up the price of electricity is maintained in accordance with the Bangladesh Energy Regulatory Commission (BERC) Act-2003. According to that Act, at first the related distribution authority has to apply before the commission for a price change and then the commission will arrange a public hearing session after verifying the application. The Commission will then conduct a series of compact scrutiny before resettling the price of electricity and the price will be adjusted considering the respective distribution company’s breakeven point. However, there are no other acts that can directly deal with the price settlement of electricity.
If the VAT is imposed at the customer level then, the Maximum Retail Price (MRP) of electricity will have to be determined. Say, if the current price of per unit of electricity is 6 tk then the imposed 15 percent VAT will destine the MRP to 6.19 tk. NBR will take the VAT amount at the production or generation level which will be collected later from the end customers. So, the distribution companies have to apply before the BERC to determine the MRP including with the new VAT rate. But, according to the related sources, till the date, none of the distribution authorities have applied to BERC regarding resetting the price. However, NBR claimed that it has sent a letter to the power division to settle the MRP.
On the other hand, if the VAT is imposed on the distribution side then the Power Development Board (PDB) has to pay a lot of money to the NBR. Seeking anonymity a high official of the PDB said that, the PDB enjoys a tax rebate which can be summed up by 700 crore tk yearly. But, if the VAT is imposed on them, the PDB has to pay 3,100 crore tk to the NBR. Considering the current tax rebate, the PDB would still have to pay 2,400 crore tk, said the official. As a result, PDB won’t have other options than to go for a price hike to avoid plausible losses due to the increased VAT.