Worries over VAT on packaged spices

People will have to pay more to buy packaged powders of spices due to the imposition of uniform 15 percent VAT on these essential cooking ingredients from July 1.

Mustard oil will also get pricier as 15 percent Value Added Tax has been slapped on it.

At present, mustard oil is exempted from VAT while Tk 6 has to be paid as VAT against an administered price of Tk 40 for each kilogram of packaged powders of spices.

The budget for fiscal 2017-18 also proposes an increase in supplementary duty on import of cinnamon, cumin, cloves, cardamom and black pepper by various rates.

However, soya bean, sunflower and rice brand oil have been exempted from the indirect tax.

Industry insiders fear the imposition of uniform 15 percent VAT, a consumption tax, will lead to a price spiral of packaged powders of spices and mustard oil, affecting mainly people from low and fixed income groups.

“The price hike will discourage many to go for hygienic food. As a result, the demand will fall,” said Choudhury Atiur Rasul, director (accounts) of Pran-RFL Group, a leading food processor and exporter.

He said companies would reduce purchases from growers if their sales drop because of increased prices of the products for imposition of uniform 15 percent VAT.

“Farmers will be affected,” he said, adding that many growers have increased production of turmeric, chilli and coriander for selling those to agro-processors.

The new VAT law comes into effect on July 1, ending the two-and-a-half-decade system of multiple VAT rates applicable to more than 100 goods and services.

The imposition of the flat VAT rate is feared to fuel living costs and affect people, particularly those from low and mid-income groups. People will have to spend more to buy garments, furniture, plastics goods and even electricity.

While placing the budget early this month, Finance Minister AMA Muhith proposed enforcing the much-talked-about VAT and Supplementary Duty Act 2012 from the next month by offering concessions to small and medium firms, and VAT exemptions for 1,042 items, instead of 536 under the existing VAT Act 1991.

However, essentials such as powdered spices and mustard oil have not been given VAT exemption whereas many of the goods that got VAT exemptions are not essential items.

Powdered spices are used by almost every family irrespective of income, owing to hassles in grinding the ingredients at home, say stakeholders.

Now, the National Board of Revenue collects VAT on powdered spices, mainly chilli, turmeric and coriander, based on tariff value or minimum value.

Under the method, the revenue authorities collect Tk 6 as VAT by fixing the price of each kg of packaged powders of spices at Tk 40. But the VAT collection based on fixed value will no longer be applicable once the new VAT law comes into effect.

People will have to pay VAT on the market prices of spices instead of the administered price.

For example, Tk 0.60 is collected now as VAT against every 100-gram packet of coriander sold for Tk 30 at retail. But the VAT amount will surge to Tk 4.5 for the same packet once 15 percent VAT is imposed on it.

Given the current market rate, the price of each 100-gram packet would go up by around Tk 4, said Atiur.

Syed Alamgir, executive director of consumer brands of ACI Ltd, said, “People will suffer. They will have to pay more to buy powdered spices.”

The government should waive VAT on essential cooking ingredients such as powdered spices, noted the high-up of the company that processes spices for both domestic and global market.

Industry operators say Bangladesh is nearly self-sufficient in meeting the annual demand for spices, thanks to increasing production of spices and condiments over the last several years.

In fiscal 2007-08, farmers produced 13.69 lakh tonnes of spices and condiments, including chilli, onion, turmeric and coriander.

Seven years later, the production went up to 24.08 lakh tonnes, show data of Bangladesh Bureau of Statistics.

According to an estimate by the Department of Agricultural Extension, production of spices and condiments stood at 33.80 lakh tonnes in fiscal 2015-16.

Ghulam Rahman, president of the Consumers Association of Bangladesh, said spices are essential cooking ingredients. “VAT should not be imposed on these under any circumstances.”

He also demanded VAT waiver on mustard oil.