The National Board of Revenue (NBR) has unearthed a significant tax evasion case involving British American Tobacco (BAT) Bangladesh Limited, the country’s leading tobacco company and largest taxpayer. Over four fiscal years, BAT allegedly evaded Tk379 crore in value-added tax (VAT) by manipulating product pricing and tax adjustments, NBR sources reveal reportedly.
An investigation by the Large Taxpayers Unit (LTU-VAT) found that BAT violated tax regulations by selling its products at prices higher than those declared to the revenue authority without paying the corresponding higher taxes. This scheme enabled the company to sidestep substantial tax obligations.
BAT pays taxes when transferring products to its warehouse, based on NBR-set prices for the fiscal year. However, investigators discovered that BAT stockpiled products after paying taxes for one fiscal year, only to sell them in the next at increased prices without recalculating taxes.
The probe initially revealed a Tk169 crore VAT evasion for FY24. Further examination of stockpiled products uncovered evasion of Tk88.21 crore in FY23, Tk56.42 crore in FY22, and Tk65.92 crore in FY21.
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On December 12, the NBR issued a notice to BAT, demanding payment of Tk169 crore for FY24 within 15 working days. Separate notices followed on December 19, requiring the company to pay an additional Tk211 crore for the previous three fiscal years.
This isn’t BAT’s first brush with tax controversies. In September 2022, the NBR discovered that the company had evaded Tk2,054 crore in VAT and supplementary duty in 2016 by concealing information. That case remains unresolved in court.
BAT isn’t alone in deploying such tactics. The NBR found that another multinational tobacco giant, Japan Tobacco International (JTI) Bangladesh, also avoided VAT using similar methods. However, details of JTI’s evasion remain undisclosed.
The evasion was facilitated by the rising prices of tobacco products in recent budgets. Taxes on cigarettes are calculated based on prices set on budget day. For FY25, the budget was announced on June 6. Before this, BAT transferred a large quantity of cigarettes to its warehouse, paying taxes based on FY24 prices. After the budget announcement, the same cigarettes were sold at higher prices, without paying additional VAT on the increased rates.
A notice obtained by The Business Standard (TBS) detailed BAT’s transactions for FY24. The company paid Tk3,044.65 crore in taxes based on pre-budget prices. However, it sold the products at post-budget prices, generating Tk3,213.42 crore in revenue — leaving a tax gap of Tk169 crore.
While VAT is typically collected at the production stage before products move to warehouses, the NBR clarified that selling products at prices higher than those reported is not permitted. Additional taxes are applicable on such price increases, though no supplementary duty will apply in this instance.
The revelations underscore the scale of VAT evasion within the tobacco industry, with the NBR tightening its grip to recover unpaid dues. Whether BAT complies with the latest demands or disputes them in court remains to be seen.
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