Strict policy needed to stop tax evasion on cigarettes

Cigarette is one of the sectors from which the government gets more revenue. Due to the high tax rate, a large amount of revenue is coming from this sector, as well as the occurrence of revenue evasion is happening greatly. To this end, traders and analysts in the sector have advised the National Board of Revenue (NBR) and other concerned agencies to be strict in curbing revenue evasion. They suggested that the bandroll system should be lifted to prevent counterfeiting. At the same time, it is necessary to ensure that the approval of the state agencies required for the formation and management of the company is being carried out properly. The NBR needs to have detailed information on the production and supply of cigarette companies.

Tax evasion and re-use of tax stamps and bandrolls are on the rise. Various companies are evading taxes by forging the signatures of revenue officials and removing tax stamps and bandrolls from The Security Printing Corporation. Again, some companies are evading revenue by forging the well-known brands in the market. Such incidents are often proved in various operations conducted by VAT detectives and law enforcement agencies. Initially, the factories were closed and cigarettes were confiscated, but soon after, the companies reopened their factories and restarted marketing their brands.

Stakeholders say there is a lack of strict policies to handle the spread of revenue-evading cigarettes. The VAT and Supplementary Duty Act-2012 is also not enough to prevent revenue evasion of cigarettes. In the current financial year, the NBR has made it mandatory for cigarette manufacturers to adjust the tax stamp on a quarterly basis. This can provide us a clear evidence of how much tax stamp a company is collecting from The Security Printing Corporation and how much cigarettes it has produced. But this adjustment in the quarter has only been applicable to large companies and this policy could not be implemented in most of the producers.

Legal producers think that some strict sections should be added to the VAT and Supplementary Duty Act to stop revenue evasion. It is relatively easy to duplicate bandrolls and for this, if the use of bandrolls can be stopped for cigarettes, they will be bound to use new security tax stamps. Stopping the use of bandrolls will reduce government spending on the one hand, and the expansion of revenue-evading cigarettes on the other. It may be mentioned here that fake bandroll factories were recently unearthed in Bogra and Rangpur and the National Board of Revenue took action against them.

At present, the NBR does not have actual information about the number of cigarette manufacturing companies in the country and the number of their machines. Concerned parties think that the database is needed to prevent revenue evasion.

In recent times, it has been seen that cigarette factories are being set up behind rice and oil mills. So a proper regulation is required to set up a cigarette factory which will serve as a prerequisite for setting up a factory. Currently many cigarette companies start their business with just a VAT license from the local commissionerate. However, in order to give permission to a cigarette factory, the local VAT commissioner must take a copy of trade license, factory license, environmental clearance, firefighting license, boiler and explosives license, building design approval letter. Cigarette manufacturers require at least 19 licenses but companies that evade revenue do not care about these rules and regulations.

This VAT registration process for cigarette companies should be manual and should be handled centrally by the NBR, experts opined.

During the pre-budget discussion with the National Board of Revenue (NBR) on March 25, 2021-22, the Bangladesh Cigarette Manufacturers Association also called on the NBR to continue its campaign against the use of these fake tax stamps and bandrolls on cigarettes. They observed that the NBR has been relentlessly trying for three years to stop the expansion of revenue-evading cigarettes. Unfortunately, a significant number of cigarettes are still being sold in the market with revenue evasion, resulting in the government losing about TK1,500 crore to TK2,000 crore a year in revenue. The Bangladesh Bidi Association also agrees and suggests that the number of revenue evading bidi factories has increased significantly in recent times and as a result, old bidi traders are facing financial losses. They called upon the NBR to take stern action against factories using fake bandrolls.