VAT hike to increase production cost for steel makers

The production cost of steel makers in Bangladesh is going to increase as the revenue authority seeks to hike the value-added tax on rod and other steel products by up to 20 per cent, two leading producers said yesterday.

The National Board of Revenue (NBR) proposed raising the indirect tax by Tk 200 per tonne at the manufacturing stage of billet and rod.

Following the spike, the rate of VAT on the manufacturing of billet will increase 20 per cent to Tk 1,200 per tonne from Tk 1,000.

In the case of making steel products from billet, manufacturers will be required to pay a VAT of Tk 1,200 per tonne from the next fiscal year while it was Tk 1,000 in the outgoing fiscal year, according to the Finance Bill 2022 placed by Finance Minister AHM Mustafa Kamal in parliament on Thursday.

However, industries that produce steel products by making billet from scraps will have to count Tk 2,200 per tonne as VAT, up 10 per cent from the outgoing fiscal year.

"Our costs will increase because of the hike," said Mohammed Jahangir Alam, managing director of GPH Ispat Ltd, one of the largest steel producers in Bangladesh that are engaged in making and trading billet and rod.

He said industries that produce rod by purchasing or producing billet from other units will see increased costs as the operators will be required to buy the raw materials from others by paying higher VAT.

However, the burden on firms that make rods and other steel products through an integrated production process will be lower.

Bangladesh annually requires 80 lakh tonnes of rods and other steel products, and factories having both billet and steel-making units cater to a majority of the demand.

Industries that make steel from billet supply the rest, Alam said, adding that the cost of these kinds of firms is likely to rise for the VAT rate hike.

An NBR official said the VAT has been increased at the manufacturing stage of billet and rod as the rate had remained unchanged for many years.

He said the revenue authority slashed the VAT on the trading stage of steel products by 60 per cent to Tk 200 per tonne to minimise the price pressure on the shoulders of end consumers.

Tapan Sengupta, deputy managing director of BSRM, another major steel producer, said end customers should benefit from the reduction of the indirect tax at the trading stage.

"But for us, costs will increase," he added.

On the other hand, Alam said any positive impact of such a reduction of the indirect tax at the trading stage is unlikely as many traders remain out of the VAT net.

Rod prices spiked marginally last week, when they were priced between Tk 91,500 and Tk 87,500 per tonne compared to Tk 87,000 and Tk 90,500 the week before, as per data from the Trading Corporation of Bangladesh.