BAT’s cigarette pricing strategy: NBR claims Tk 3.79bn

Cigarette consumers pay higher prices after tax hikes, but companies delay increased tax payouts

British American Tobacco, or BAT, Bangladesh has allegedly deprived the government of Tk 3.79 billion in duties and taxes over four fiscal years by exploiting a strategic loophole, despite selling cigarettes at higher prices after budget tax hikes.

The National Board of Revenue's Large Taxpayers Unit, or LTU-VAT, claims to have found evidence of tax evasion after verifying BAT's inventory and sales data.

Following this, the LTU issued four separate demand notices for the respective fiscal years, said Md Shamsul Islam, commissioner of LTU-VAT.

The money is restorable, he told bdnews24.com, citing the notice.

When approached for a comment, a BAT Bangladesh spokesperson declined to provide any remarks.

Customers have to purchase cigarettes at an increased price following a hike in tax in the budget every year.

However, the government could not make any profit in the first several months, owing to the strategies of the cigarette companies.

The companies produce the surplus prior to budget and unload the goods from their factories by paying the duty and tax set on the outgoing budget.

These cigarettes are sold to the consumers at a higher price.

The LTU discovered evidence of tax evasion amounting to nearly Tk 2.11 billion in the 2023-24 fiscal year.

A notice was sent to BAT in late September demanding this amount.

However, questions arose regarding which fiscal year’s tax rate would apply to the higher cigarette prices.

The VAT rules branch of the NBR clarified that the tax rate applicable during the previous fiscal year should be enforced.

After adjustments, the tax evasion figure for 2023-24 was revised to Tk 1.69 billion.

Subsequent investigations found tax evasion of Tk 880 million in 2022-23, Tk 564.2 million in 2021-22, and Tk 659.2 million in 2020-21.

Audits for these years were conducted according to the VAT rules branch’s guidelines.

The total amount of tax evasion across the four fiscal years was calculated to be Tk 3.79 billion.

NBR’s Second Secretary (VAT rules) Md Badruzzaman Munshi told bdnews24.com: “We alleged that they sold cigarettes at higher prices. When the retail price exceeds the set maximum price, the additional amount is subject to duties and taxes.

"Duties and taxes apply as per the law, based on the day the product leaves the factory," he added.

An NBR official said, “As the companies take the opportunity every year, we collect information about the stock of cigarettes by visiting their factories a day before the budget presentation.

“We visited the company’s depots and warehouses in various areas in Gazipur and found that it is supplying the same cigarettes to district-level dealers at an increased price by adding duty and tax set in the new budget."

Asked how many such warehouses are in the country, he said, “They are nearly 30 to 35 and not fewer than 25."

LTU Commissioner Shamsul told bdnews24.com that the demand notes required BAT to respond within 15 days.

He added that interest would be charged on the unpaid dues at the applicable rate as per the law, until the payment is made.

"Due to legal limitations on auditing records older than five years, we have currently audited only the last four fiscal years," Shamsul said.

BAT’s public relations agency Forethought PR responded to bdnews24.com on the company’s behalf, saying: "The issue is an internal matter between the LTU of the NBR and the taxpayer. Therefore, we are unable to comment on this."