Although the new value added tax (VAT) law will be effective on July 1 with a flat 15% VAT for all sectors, the tax rate for electricity sector will come into effect after three months due to some procedural and legal complexities.
The complexities have arisen over the collection of VAT as the National Board of Revenue (NBR) proposed setting new prices of power by incorporating the existing 5% VAT rate into it.
That would allow NBR to absorb some of the negative reaction that is sure to arrive once the new VAT rate is introduced.
The Bangladesh Energy Regulatory Commission however deems such a move illegal.
Officials of the Bangladesh Energy Regulatory Commission (BERC), NBR, Power Development Board (PDB) and Rural Electrification Board (REB) have held several meetings on how to add the VAT to retail prices.
For the VAT law to come into effect, a lot of changes are necessary in relation to power generation, transmission and distribution agencies and companies, a BERC member said, preferring to stay anonymous.
In the meetings, the BERC decided to send a letter to the Prime Minister’s Office, seeking three months’ time so the procedural issues can be addressed, he added.
The official said: “Distribution companies need to change their billing papers, which currently contain a 5% VAT rate. But, as per the new law, there will be no figures showing VAT percentages in the billing papers as the VAT will be included in the bills.
“The NBR fixed distribution prices under the new law without increasing prices of power. But if we increase price this way, then there will arise a number of legal complexities in future.”
Signing the same tune, another BERC official, who too preferred anonymity, said: “The BERC does not want to face any legal problems. Power agencies and companies have already proposed we increase wholesale and retail prices.”
The BERC will reset power prices after holding public hearings on their proposals. The regulator will follow this procedure so consumers do not understand whether the prices are set following the hearings or according to the law, he added.
Proposals of hike prices
On February 25, 2017, the state-owned PDB proposed the BERC raise wholesale prices of electricity by Tk0.72 per unit ( (kilowatt-hour). In another proposal on March 9, it urged the regulator to hike retail prices by Tk0.98 per unit and said it was necessary to increase retail tariffs to Tk7.71 from Tk6.73 and wholesale tariffs to Tk5.59 from Tk4.87.
Other state-run companies including Rural Electrification Board and Dhaka Electric Supply Company Ltd ,too, proposed hiking the prices. However, the BERC is yet to take any step in relation to their proposals.
Prof M Shamsul Alam, energy adviser to Consumers Association of Bangladesh, told the Dhaka Tribune if the 15% VAT was imposed, the prices of power would increase, causing the consumers to suffer. He demanded decreasing the VAT rate.
PDB Controller (accounts and finance) Md Mijanur Rahman Sarkar said they were working on this so there were no effects at the distribution level.