Power energy and mineral resources ministry has requested the National Board of Revenue to reinstate VAT exemption to international oil companies on production and supply of natural gas, petroleum oil and other petroleum products.
If the exemption facility is not reinstated, Bangladesh Oil, Gas, Mineral Corporation (Petrobangla) will have to bear the additional burden of VAT as per the conditions stated in the Production Sharing Contract signed with the IOCs, it said in a letter to the revenue board.
The revenue board, in the budget for the current fiscal year of 2019 2020, withdrew the exemption facility from payment of value added tax with implementation of the new VAT and Supplementary Duty Act-2012 through cancellation of all previous statutory regulatory orders and notifications issued under the VAT Act 1991.
The IOCs have been enjoying the exemption since 1993 under the production sharing contract with the government.
The ministry wrote the letter after Petrobangla had made a request to the ministry to take steps to reinstate the VAT and SD exemption facility to IOCs with retrospective effect from July 1.
In the letter, Petrobangla chairman Ruhul Amin said that the corporation would have to pay the VAT and SD as per PSC with the IOCs if the exemption was not reinstated.
The state-own corporation did not have the ability to pay the additional amount in VAT and SD and the government would be required to make upward adjustment in the prices of gas and petroleum products, he said.
The government will require Tk 10,585 crore in subsidy to import liquefied natural gas in the FY 2019-2020.
The government’s dependence on LNG import would increase if it failed to attract new investments in the gas sector, the corporation said.
In 1993, the government offered the exemption to attract foreign investment in the country’s gas sector.
Taking advantage of the indirect tax waiver, US-based Chevron’s predecessor signed the PSC with the state-owned Petrobangla in 1995.
The government buys gas and condensate from the IOCs at fixed prices as per the PSC, the Gas Purchase and Sales Agreement and the Condensate Purchase and Sales Agreement.
The prices of gas and condensate were determined taking the VAT waiver into account, Petrobangla said.
Currently, the IOCs supply around 60 per cent of the total gas produced in the country.
The country’s energy supply will severely be hampered in case of any disruption in supply of gas from the IOCs.
The cancellation of the VAT exemption has also sent a wrong signal to the IOCs that will discourage future investments in the sector, Petrobangla said.
Following the cancellation of the exemption, US-based Oil Company Chevron Bangladesh president Neil A Menzies also wrote a letter to Petrobangla that outlined the impact of the NBR decision.
Chevron said that it had decided to include the VAT payable in the price invoice.
In the letter, Menzies said that Chevron Bangladesh Block Twelve Ltd, Block Thirteen and Block Fourteen Ltd were exempted from payment of VAT and SD for production and supply of natural gas and petroleum products.
The NBR now might take the position that Chevron’s VAT exemption facility was no longer enforceable, he said, adding that as per the PSC, Petrobangla shall pay all taxes if the exemption was not continued.
Officials of the revenue board said that they were yet to take any decision on the issue.
The VAT wing of the NBR had sought a number of information from Petrobangla in this connection, they said, adding that the revenue board might take a decision after receiving the data.
The standard VAT rate in the country currently stands at 15 per cent.
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