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No more duty exemption for furnace oil
Sohel Parvez
The revenue authority has withdrawn duty-free import privilege for furnace oil in order to discourage establishment of power plants using the fuel and plug annual revenue losses of Tk 2,000 crore.
The move comes at a time when imports of the expensive fuel for power generation are soaring despite the fact that overall demand for electricity stands much below the generation capacity.
Moreover, it is five times cheaper to generate electricity with gas-based power plants, thanks to import of liquefied natural gas (LNG).
At the same time, a new-coal based power plant having 600 megawatts of generation capacity has come into operation recently at the southern seaport area of Payra.
As a result of this, power generation by natural gas rose.
Share of gas-based power plants in net power generation of 70,533 GWh increased by 5 percentage points to 68 per cent in fiscal 2018-19 from that of the last year, showed Bangladesh Power Development Board (BPDB) data.
At the same time, share of furnace oil declined by more than one percentage point to 16 percent in fiscal 2018-19 from that of the previous year.
As the alternative fuel is already available and the country generates more electricity than the demand, the National Board of Revenue (NBR) has sought to remove duty benefit for furnace oil import as part of tax measures for the next fiscal year, said officials.
The change became effective from June 11, according to a notification.
“The withdrawal of the exemption will bring us Tk 2,000 crore revenue that we lost annually in the past,” said a senior official of the NBR seeking to remain unnamed.
The NBR offered duty-free benefit to import furnace oil in 2011 as part of the government’s objective to increase generation capacity to meet the country’s energy deficit and increasing demand for energy from the growing economy.
Encouraged by the removal of import tariffs, furnace oil import soared every year since fiscal 2014-15.
Import of the fuel increased 14 per cent year-on-year to 18 lakh tonnes in fiscal 2018-19 from that a year ago.
At the same time, the amount of duty exemption increased.
Officials said total tax incidence for import of furnace oil would be 35 per cent after the removal of the tariff-free benefit.
“The power generation cost by furnace oil will increase as import costs will rise,” said a senior official of the BPDB.
Currently, the country has 55 furnace oil-based power plants, including nearly 40 owned by private investors.
The combined generation capacity of power plants based on the fuel is 5,430 MW, which is 27 percent of the total generation capacity, showed the BPDB data.
Finance ministry officials said per unit cost of electricity produced by furnace oil is Tk 13.77 whereas it is Tk 2.72 for natural gas.
Discouraging the establishment of furnace oil-based power plants is likely to reduce pressure on the state coffer for subsidies provided on electricity production.
The government had to bear nearly Tk 9,000 crore as subsidy for electricity last year, said the official.
Officials of Bangladesh Petroleum Corporation (BPC) welcomed the decision and expected sale of the fuel by the state agency to rebound following removal of duty exemption for furnace oil.
Despite the overall increase in furnace oil import in the country, the BPC’s sales of the fuel to power plants slumped by half year-on-year to 3.19 lakh tonnes in fiscal 2018-19 from 6.5 lakh tonnes the previous year, said BPC Director Operation Syed Mehdi Hasan.
“It is a good decision,” he said.
Khondaker Golam Moazzem, research director of the Centre for Policy Dialogue (CPD), said the government needs to collect an increased amount of revenue. As the import of furnace oil increases, there is potential for getting revenue from this source, he said.
“Besides, it is also a positive move from the fact that we already have overcapacity in power generation,” he added.
However, the Consumers Association of Bangladesh (CAB) Adviser for Energy Prof M Shamsul Alam said withdrawal of duty benefit without stopping electricity generation through oil would increase cost.
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