The government has allowed Dhaka Tobacco Industries (DTI), an enterprise of Akij Group, to give bank guarantee involving outstanding tax worth Tk 612.76 crore on behalf of United Dhaka Tobacco Company (UDTC) before Japan Tobacco International (JTI) completes acquisition of UDTC.
Finance minister Abul Maal Abdul Muhith has already approved a proposal allowing the transfer of tobacco business of Akij Group to the Japanese company subject to fulfilment of some conditions, finance ministry officials said.
They said that value-added tax wing of NBR on Monday issued a directive to its field office of Large Taxpayers Unit (VAT) in this connection.
Earlier, on December 2, Muhith opposed acquiring UDTC by JTI before settling payment of the outstanding tax of DTI.
Thirteen cases involving the tax have remained pending with NBR, the officials said.
Muhith, in letters to commerce minister Tofail Ahmed and industries minister Amir Hossain Amu, had cleared his stance on the issue.
Later, he agreed to allow DTI to give bank guarantee as per proposal of NBR, the officials added.
According to the conditions, UDTC will have to appoint DTI as its authorised representative to give bank guarantee on its behalf to complete the transfer process.
The activities including appointment of the authorised representative should be approved in form of resolution at the board of directors’ meeting of UDTC.
UDTC will also have to give undertaking and to complete other legal formalities regarding appointment of the authorised representative and settling relevant issues.
Related activities should also be approved in form of resolution at the board of directors’ meeting of DTI (owned by SK. Akijuddin Ltd), according to the conditions.
NBR on Monday informed its filed-level VAT commissionerates including LTU (VAT) about the decision saying that commissioners could allow transfer process based on the conditions.
According to the VAT law, a business entity cannot transfer its business before clearing the payment of taxes including VAT.
A VAT commissioner, however, can allow transfer process if the buyer company gives unconditional bank guarantee on payment of outstanding taxes.
JTI and Akij Group in August this year entered in an agreement over acquisition of UDTC, owned by Akij Group’s subsidiary SK. Akijuddin Ltd.
The transfer worth $1.476 billion (Tk 12,430 crore), Bangladesh’s biggest-ever foreign direct investment and acquisition deal, is expected to be completed soon.
Earlier, DTI, Akij Zarda Factory Ltd, Perfect Tobacco Co Ltd and Akij Corporation Ltd had formed UDTC transferring their assets to the company.
LTU (VAT) on November sought decision of NBR on allowing DTI to give the bank guarantee on behalf of UDTC.
Initially, Muhith feared that tobacco-related company of Akij Group would no more exist once it is taken over by JTI.
He also noted that settlement of tax payment to NBR by the company would remain pending once the deal was completed.
Of the acquisition amount, $1.09 billion or Tk 9,180 crore is for the outstanding shares and the remaining $386 million or Tk 3,250 crore is for trademarks and design rights.
In addition to the amount, there are transaction costs such as stamp duties worth $28 million or Tk 240 crore payable to Bangladesh tax authorities.
UDTC holds about 20 per cent share of the cigarette market in Bangladesh, the eighth largest cigarette market in the world, with volumes exceeding 86 billion units and growing by about 2 per cent year-on-year.
Akij currently occupies the 2nd position in both the value and base segments with brands such as Navy and Sheikh.
JTI is a leading international tobacco company with operations in more than 130 countries. It manufactures and sells brands Winston, Camel, MEVIUS and LD.
JTI entered in the Bangladesh market in 2015 with Winston cigarette and held 0.1 per cent market share as of 2017, according to the company’s estimates.
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