The government is likely to reduce the value-added tax for the backward linkage of internet service providers to 5 percent with the view to lowering the price of internet for more than 9 crore internet users ahead of the general election.

As a result, all the internet service providing channels will be paying 5 percent VAT, down from 15 percent, from December 1.

"This will reduce the cost for internet users," Telecom Minister Mustafa Jabbar told The Daily Star yesterday citing a decision of a recent meeting at the finance ministry. This is a gift to the internet users ahead of the general election, he added.

However, a senior official of the National Board of Revenue said they are yet to get any official instruction from the finance ministry in this regard.

The decision was taken at a meeting early this week in response to a letter sent by Jabbar to Finance Minister AMA Muhith in which he said the end users are not benefiting from the reduced VAT rate of 5 percent.

Since the internet service providers (ISPs) and mobile phone operators do not get rebate for buying services from International Terrestrial Cable (ITC), International Internet Gateway (IIG) and Nationwide Telecommunication Transmission Network, the reduced VAT rate failed to play any role in this regard.

In fact, the cost of internet usage has increased at the subscribers' end, said Jabbar, seeking for resolution of the complexity from Muhith.

"Personally, I think, this move will help customers use internet at cheaper rates. At the same time, the government's earnings will increase as no one will get rebate," he said in the letter.

However, the NBR official said consumers will not benefit from the VAT cut to 5 percent all along the chain in the absence of rebate.

There will be a cascading effect as there will be no rebate.

"So ultimately the VAT rate is likely to remain high and consumers will not be able to enjoy the benefit," he said preferring to remain unnamed.

Instead of reduction, the NBR in an analysis sought to reinstate the standard 15 percent VAT on all through the value chain.

In its analysis, the NBR, citing newspaper reports that the cost of internet usage has not reduced at the users' end, said a handful of firms are enjoying the benefit of the reduced VAT rate on internet usage instead of transferring the benefit to users, said finance ministry officials.

Officials said the NBR in its analysis said internet service was one of the main revenue generating sectors, bringing Tk 1,300 crore for the state coffer before the reduction of the VAT rate at the users' end.

Complexity related to VAT rebate would be resolved if 15 percent VAT is imposed all through the chain and revenue collection from the sector will continue to increase, officials said.