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No more VAT refund for import of raw materials

Move to hit local cos that win international bids

NAZRATUN NAYEEM MONALISA
Local firms that win contracts for supplying products or services in foreign currency through international tender will be hit hard by a decision of National Board of Revenue (NBR) not to consider such products or services as exported.
Companies which used to win such international tenders were required to pay an advance 15 percent VAT to the government for importing raw materials and on delivery of the finished goods such advance tax used to be refunded.
But the NBR through an Statutory Regulatory Order (SRO) on June 10 decided to scrap the provision, which local firms say
will give an edge to foreign companies who compete with local firms in such international tenders.
Transformer, cables, pipes and angles manufacturers, light engineering firms and roads and highways construction firms who win such international tenders worth several hundred crores of taka every year will face huge financial loss by the new move.
Besides, the backward linkage firms of these manufacturing companies or suppliers will also be affected immensely, sources said adding that this will also have a negative impact on country's foreign exchange reserve.
Defending the move, NBR officials said a section of compa-
nies had resorted to use the facility of deemed export as a tool to evade value-added tax (VAT) that prompted the authorities to abolish the provision through an SRO.
Last year, a local transformer manufacturing company secured work orders of Tk 80 crore from Power Development Board and Rural Electrification Board through international tenders.
But this year as the facility does not exist any longer, a senior official of the company apprehends that it will not be able to compete with the foreign companies in future as the foreign companies enjoy the tax exemption facility.
Most of the local firms have to
pay value added tax (VAT) twice, first for importing raw materials, and then for supplying finished products which increases their total cost as well as prices they quote in their bid, industry sources said.
"On the other hand, the foreign firms get the facility of tax exemption for similar tender as exporting firms. They can quote lesser price in tender that makes the local firms losers," according to a CEO of a local company.
Withdrawal of the facility will have an impact on foreign exchange reserve also, said a former member of NBR. "If only the foreign firms are awarded with the tenders instead of local ones, foreign currency will not come to
Bangladesh."
While NBR officials claim that the decision was taken in a bid to stop VAT evasion by suppliers and to give equal opportunity to all firms participating in tender, the local firms say it is only a discrimination to favour foreign companies.
Criticising the NBR move, a VAT expert said as the deemed export-oriented firms are earning foreign currency, the provision can be made stricter rather than abolishing it.
"Such a move will destroy local industry and allow foreign firms to deal with all the infrastructurebased works of the country," said another expert.