The restaurant sector has seen a boom in recent years, spreading across the country. These business establishments are ubiquitous. One will find a restaurant to dine in at every corner of a road. Even remote villages are not falling behind in this regard.
Food lovers are now seen flocking to restaurants around the popular tourist destination Chalan Beel as well. However, the government is not receiving the desired amount of revenue from this sector.
Economists say that the government will be able to bag three times more revenue if the National Board of Revenue (NBR) is strict in stopping VAT evasion by hotel and restaurant owners. They say that restaurants have now become a place for recreation and families go there regularly. There are many restaurants where one has to pay a bill of Tk1,000 to Tk2,000 for a small portion. If the restaurant is famous, then it will charge its customers up to Tk10,000.
Due to a change in people’s food habits and tastes, the number of restaurants is going up in districts and upazilas. Young entrepreneurs are also investing in this sector. Many international chain restaurants are also becoming popular here.
Many now term Dhaka a city of restaurants. There is no alley in Dhaka where multiple restaurants cannot be found. Restaurants of different sizes and capacities are there. Recognizing the sector’s contribution in employment creation and the economy itself, the government formally gave the sector industry status in 2022.
Although these hotels and restaurants are charging customers a hefty amount of money every day, the NBR is not getting the desired amount of VAT from this sector. There are allegations that all big and small restaurants are simultaneously evading VAT.
VAT for the sector was reduced to 5% in the previous budget by the government, which was 10% even in 2001. Despite this, the amount of VAT revenue that the NBR has collected is not adequate.
A restaurant named Royal Village has been doing business for a long time in the Maniknagar area of the capital. Despite having an Electronic Fiscal Device (EFD), this air-conditioned restaurant is not issuing VAT invoices to customers. It has been evading VAT. A visit to the restaurant recently revealed that its management was charging customers extra when they demanded a VAT receipt. Royal Village is not alone in this; hundreds of other restaurants are reportedly evading VAT just like this.
According to the Value Added Tax and Supplementary Duty Act, 2012, it is the responsibility of restaurants to collect VAT from the customer against the goods and services they render and deposit it into the government treasury every month. But in reality, many restaurants collect the due amount of VAT but never deposit it in the government treasury.
A couple of years ago, when the NBR conducted regular raids across the capital as a measure against VAT evasion, the sensational information of VAT evasion by many popular restaurants came to the fore. Purnima Restaurant and Khana Khazana in Gulshan, Chef's Table in Madani Avenue, Star Hotel and Restaurant in Dhanmondi, The Mirage and Raw Canvas were some of the restaurants that were fined for evading VAT. In 2022, allegations of VAT evasion were also raised against Pan Pacific Sonargaon Dhaka.
In the same year, the VAT Audit, Intelligence, & Investigation Directorate uncovered VAT evasion by Dhaka Regency Hotel. In 2020, allegations of VAT evasion were raised against Lakeshore Hotel in Gulshan. Besides, there are allegations that hundreds of restaurants in Cox's Bazar are also evading a huge amount of VAT every day.
In 2021, a survey was conducted by the VAT Audit, Intelligence, & Investigation Directorate. According to the survey, four out of every five businesses do not have a Business Identification Number or BIN. They are doing business without registration. Meanwhile, there is an initiative to set up EFD to increase VAT collection at the retail level, but it has not been fruitful due to technical issues.
However, officials are hopeful of the project’s success.
An NBR official, Dr Moinul Khan, said: “The NBR is active in collecting VAT at the retail level. 16,000 new EFD machines were installed from July last year to February this year. Another 60,000 machines will be installed in Dhaka and Chittagong by next June.”
The NBR has collected Tk77,224 crore in VAT in seven months (July to January) of the current fiscal year. The NBR has already fallen short of its target by Tk3,293 crore in the first seven months, according to official sources. The target for the fiscal year was set at Tk1,59,100 crore.
Those concerned say that pressure was created on a handful of establishments without trying to collect VAT from these restaurants. The NBR is now collecting VAT from private universities as well. Apart from this, the NBR is trying to impose VAT on tickets for the Dhaka metro rail. If this happens, then the ticket price may increase by Tk3 to Tk15, depending on the distance.
The initiative has been criticized by different quarters. The Dhaka Mass Transit Company Limited (DMTCL) has written to the NBR and Road Transport and Bridges Ministry to reconsider the decision.
According to World Bank data, the country is losing around Tk2,00,000 crore in VAT every year. In the 2018-19 FY, the government was able to collect only Tk85,000 crore in VAT.
However, economists see a huge potential for VAT collection in the restaurant sector. Even the NBR considers it a promising sector. NBR Chairman Abu Hena Md. Rahmatul Muneem recently participated in a pre-budget discussion with businessmen in Rajshahi, where he stated: "Two of the most profitable businesses in the country are the car business and the restaurant business."
The NBR chairman said: “I sometimes think that when I retire from my service, I must open a restaurant. I take it seriously and I want to do this business. Because when Bangladesh becomes a developed country, people will not cut fish and cook at residential apartments. If one spends one’s time doing other things than cooking, then it will generate more income, in case there is no house help available. In this situation, people's dependence on restaurants will increase. This is the case in all developed countries. That's why it seems that the restaurant business will do much better in the future.”
Meanwhile, the Institute of Cost and Management Accountants of Bangladesh (ICMAB) has proposed a Tk50 per-head tax on weddings and birthday parties held at restaurants. In a proposal submitted to the NBR, it said that in cases of bookings of over 100 guests, this per-head tax can be imposed.
In this context, ICMAB Member Syed Abdur Rahman Khan said: "Many people spend a lot of money even if they are not under the purview of the existing tax system. This proposal has been made to bring them under the tax system to some extent."
He thinks that the tax to Gross Domestic Product or GDP ratio in the country is low. In order to increase the ratio, the scope of tax should be increased, and hotels and restaurants can play a big role in this.
What is the number of hotels and restaurants in the country?
There is no real information about the number of hotels and restaurants in the country. The Bangladesh Bureau of Statistics (BBS) conducted a survey in 2022 to find out the contribution of the hotel-restaurant sector to the GDP. According to the results of the survey, the total number of hotels and restaurants in the country in 2021 was 436,274, which is 58% more than the 2009-10 FY. There are 852 hotels and restaurants owned by different government agencies. The rest are owned by individuals and private institutions.
The number of restaurants running with trade licences is over 60,000. There are hundreds of rooftop restaurants in Dhaka, and none of them has a valid permit. There are more than 500,000 hotels and restaurants in Dhaka, according to official sources.
According to the survey, value addition to GDP has increased eight times in a decade. A decade ago, value addition from hotels and restaurants was only Tk11,986 crore, and in the last fiscal year, it was Tk87,926 crore.
Meanwhile, Secretary General of the Bangladesh Restaurant Owners Association Imran Hasan said that there are 2,700 members in his association in Dhaka. However, he thinks that there are ten times more restaurants in total in Dhaka. According to the association, about 60,000 restaurants are doing business across the country.
Imran Hasan said there are many people doing restaurant business, ‘but they are not our members. Many have closed down their businesses after becoming our members. As a result, it is difficult to find out the actual number of restaurants.’ He said that software is being developed to bring all those who do restaurant business under one umbrella. This software will be launched soon.
