Govt may withdraw decision to impose VAT on metrorail

The National Board of Revenue (NBR) has exempted Value Added Tax (VAT) or supplementary duty VAT on metro rail passenger services throughout the current financial year 2023-24. However, starting from July 1 of the current year, Dhaka Mass Rapid Transit Company (DMTCL) has informed the NBR that this facility will no longer be available.

If this decision remains unchanged, the fare for Metro Rail tickets will increase, affecting the passengers adversely. Discussions have been underway regarding the possibility of reconsidering this decision from a public interest perspective, as disclosed by a senior official of NBR under the condition of anonymity to Views Bangladesh.

The NBR official further stated that discussions have been initiated to reduce the VAT on Metro Rail in the upcoming fiscal year 2024-25 to 15% from the current rate, possibly even lowering it to 5%. To determine if there's any opportunity for retaining the exemption, the official hinted that if certain indicators turn green, it might be possible.

According to sources from DMTCL, currently, approximately 260,000 passengers travel on the Metro Rail daily, with the peak daily ridership reaching 275,000. Despite efforts to communicate with multiple officials of the institution, information regarding daily revenue from passenger fares remains unavailable. However, assuming an average of 260,000 passengers spending 50 taka each, the total revenue stands at one crore and 30 lakh taka.

With the imposition of a 15% VAT, the NBR could potentially collect an additional daily revenue of 1.95 million taka. This would contribute to an extra 71 crore taka annually to the revenue account.

Based on the current decision, if a 15% VAT is imposed on tickets, an additional revenue of approximately 710 million taka will be collected annually. In contrast, if the VAT rate is reduced to 5%, the additional revenue would amount to around 24 crore taka annually.

As per the fare schedule provided by DMTCL, the fare from Uttara North station to Motijheel station is currently 100 taka. Additionally, the minimum fare for any distance is 20 taka. However, if a 15% VAT is added to this fare, it would increase to 23 taka. Similarly, a journey from the starting station to the last station would cost 115 taka instead of 100 taka.

On the other hand, if a 5% VAT is imposed, the minimum fare would increase to 21 taka. And for a 100 taka fare, passengers would need to pay 105 taka. If the VAT exemption is retained, the fare will remain unchanged.

The additional financial burden will create pressure on passengers, and the imposition of VAT on Metro Rail passenger service is deemed detrimental, according to Mozzamel Haque Chowdhury, Secretary-General of the Passenger Welfare Association.

He told Views Bangladesh that, "The revenue generated from Metro Rail is also the government's revenue. If VAT is increased further to boost revenue, it will burden the passengers. It's a self-destructive decision."

In this context, the fare for our metro rail is the highest among South Asian countries. Not only is it the highest, but it is also several times higher, creating significant pressure for ordinary people.

Additionally, it's worth noting that the metro is being used only by the wealthy. If public transportation services are improved and if people have more options for transportation, it would have been difficult for the metro to attract passengers at this fare. The government needs to consider these issues seriously.

Imposing VAT solely on metro rail fares is seen as discriminatory by Dr. Khandakar Golam Moazzem, Research Director of the Centre for Policy Dialogue (CPD), an independent research organization.

He told Views Bangladesh, "It is necessary to levy VAT on every service on a policy basis. But it shouldn't be like this - while imposing VAT on the metro rail, we've kept VAT exemption for importing power for the Rooppur Nuclear Power Plant. If policies are equal for everyone, even if it causes inconvenience, passengers will be interested."

Previously, the Dhaka Mass Transit Company Limited had sent a letter to the NBR explaining why VAT was not being collected on metro rail tickets. The company stated that metro rail operations cannot be profitable solely through ticket fares. It was also mentioned that there is no classification of passengers, and therefore no additional fee is applicable for metro rail services.

On the other hand, according to NBR laws, a 15% value-added tax (VAT) or supplementary duty is applicable to both air-conditioned (AC) and non-AC rail services.

In this regard, at least twenty passengers of the metro rail were interviewed. They said that such decisions put a kind of burden on passengers. They advise the government to reconsider such controversial decisions. They urge the government to consider the risk of not targeting low-income people while increasing revenue collection.