NBR set to raise furnace, base, lube oil's tariff values 'to prevent tax evasion'
Sources involved in fiscal policy formulation have hinted that the tariff value for furnace oil is likely to be doubled, while the value of base oil and lubricating oil may increase by more than 50% from their existing levels.
The tariff value of furnace oil, base oil, and lubricating oil is expected to increase by up to twofold in the upcoming budget, with tax authorities expecting an additional collection of around Tk900 crore revenue currently lost due to misdeclaration by importers.
Sources involved in fiscal policy formulation have hinted that the tariff value for furnace oil is likely to be doubled, while the value of base oil and lubricating oil may increase by more than 50% from their existing levels.
Currently, the tariff value for furnace oil is $265 per tonne, base oil (a raw material for lubricating oil) is valued at $700, and lubricating oil is priced at $2,000. Besides, the total tax incidence for the three oil products are 34%, 31%, and 49%, respectively.
Furnace oil is mainly used in power plants running on heavy fuel oil (HFO), while lube oil is used in various engines across industries, transport, and other sectors. About 60 private power plants in Bangladesh use furnace oil to generate electricity for the national grid.
Keep updated, follow The Business Standard's Google news channel
While officials claimed the move will increase the products' prices, industry insiders and experts fear that inaccurate valuation of the three oil types could negatively impact industries, ultimately affecting consumers.
The tariff value or minimum value for three oils are much lower than international market prices, a senior finance ministry official told The Business Standard, wishing anonymity.
The revenue board is looking into adjusting these values in the next budget, said the official.
He clarified that the move will not inflate product prices. "Its goal is to deter tax evasion through false declarations, ensuring that importers cannot declare lower values for their products to avoid paying taxes."
The tariff value is a minimum price set by customs authorities through statutory regulatory order (SRO) for assessing imported products. If this value is applied to a product, importers cannot declare a lower price.
Importers can declare a higher price if the product was imported at a higher cost. With such, if the tariff value rises, import taxes go up too.
In Bangladesh, tariff or minimum values are set for over a hundred products. However, the World Trade Organization does not favour the system.
'Fixing proper value is crucial'
Md Farid Uddin, former member of the National Board of Revenue (NBR), said it is important to accurately set tariff values. If the value is higher than the actual import cost, consumers may face increased pressure.
For example, if a product's international market price is $1,000 per tonne but the tariff value is set at $1,500, consumers end up paying more than the import cost.
Besides, Farid Uddin noted that product quality influences its value. For instance, lube oils for rickshaw and aircraft are not the same.
"Lubricant used in rickshaws will definitely cost less. If the tariff value for lubricant used in rickshaws is higher than its actual price, it will raise costs for rickshaw drivers," he explained.
Therefore, he suggested imposing taxes based on the actual value rather than using tariff systems. "The NBR should create its own capacity in determining the actual value."
Furnace oil
Navidul Huq, managing director of Desh Energy, a private power producer, said the government covers their furnace oil costs. So, if those costs rise, it burdens the government.
He also said lubricant oil makes up about 20% of their total operating expenses, which they have to pay themselves. If its price goes up, their operating costs will surely rise too.
Huq expressed concern over the move, noting that they are already dealing with losses from outstanding dues, and any more price increases could make their situation even worse.
Lubricant and base oil
The annual demand for lubricant oil in Bangladesh stands at around 1.70 lakh tonnes, according to the Bangladesh Lub Blenders Association. Currently, local oil manufacturers meet over 50% of this demand.
Revenue officials said major lubricant suppliers and importers typically declare close to the actual import value, covering roughly 70% of total imports.
However, the remaining 30% of importers may be worried that they will not be able to understate import cost with an adjudicated tariff value.
Regarding base oil, Saleh Arpan, secretary general of Bangladesh Lub Blenders Association, said if the tariff value aligns with the international price, it will not pose any issues for them as they already declare the actual import price.
However, if the price is set higher than the international rate, it could raise their production costs and may end up putting additional pressure on the consumer, said Arpan.
