The government of Bangladesh is losing revenue of thousands of crores annually from the tobacco sector due to various tactics applied by the tobacco companies.
The multinational companies are making billions of money in profit through revenue evasion regularly.
One of the tobacco companies is Dhaka Tobacco Industries Limited as the cigarette company has already evaded huge amounts of value-added tax (VAT), supplementary duty and surcharge by concealing information and applying various other tactics.
The National Board of Revenue (NBR), the apex authority for the tax administration in Bangladesh, has found evidence that despite earning huge profits, previously the country’s second largest cigarette manufacturing company has evaded government revenue of about Tk. 11,000 crore in four fiscal years from 2014-2015 to 2017-2018.
Government officials concerned, researchers on tobacco control and anti-tobacco activists said that the Dhaka Tobacco Industries Limited evaded the revenue through various tactics. The cigarette company tried to mislead the VAT detectives with various tricks.
The revenue evasion of the leading tobacco company has been uncovered during the intelligence investigation of the VAT Audit, Intelligence & Investigation Directorate, the specialized intelligence agency of the government under the NBR responsible for investigating VAT fraud. There are also allegations of extreme non-cooperation in the investigation, said officials of the intelligence agency.
An investigation report has been submitted to the NBR after finding evidence of irregularities through step-by-step verification of documents from import to production. The findings are now under review. A senior official of NBR said that the claim form may be issued soon from the Large Taxpayer Unit (LTU) of the NBR.
The Dhaka Tobacco Industries Limited manufactured Marlboro, Navy, Navy Blue, Sheikh, Five Star and Gold Mine cigarettes. It supplies three to four thousand crore of cigarette sticks to the local market annually. The company also exports its products.
Dhaka Tobacco Industries Limited, a concern of Akij Group, was sold to Japan Tobacco International (JTI). The revenue evasion took place when the company was under Akij Group. So, evasion money discovered by the VAT detectives has to be paid by Dhaka Tobacco as well as the Akij Group.
Dhaka Tobacco Industries Limited is the company that belonged to Akij Group. JTI acquired Dhaka Tobacco Industries Limited in December 2018 and named it to United Dhaka Tobacco Company Limited. The tax evasion was done by Dhaka Tobacco Industries Limited before the acquisition by the JTI.
The authorities concerned, however, are thinking to take legal action to recover the amount from the cigarette company-- Dhaka Tobacco Industries Limited.
Ruhul Amin, AGM (tax and VAT section) of Akij Group; said that the main disagreement has been created cantering the demand for VAT and duty at the raw material level in cigarette production. Apart from their company, a huge amount of VAT was claimed from another company. It has been resolved, he claimed.
“Even if the VAT detectives demand a large amount of VAT from us, they will not get that much money. We have also objected to the NBR Chairman in this regard. The matter is under resolution. I hope it will be settled very soon,” he said.
When asked about the matter, Dr. Md. Abdur Rouf, director general of Audit Intelligence & Investigation Directorate; said that the investigation is going on regarding the issue.
Tobacco is the main ingredient in cigarette production of Dhaka Tobacco Industries Limited. However, several raw materials are also used for the production. Cigarettes are subject to supplementary duty, health care surcharge, income tax and VAT. The amount of revenue evasion in the investigation may be less or more, said an NBR official.
He also said, “Our intelligence team took a lot of time to prepare the report. We found that the Dhaka Tobacco Industries Limited deliberately did not file their documents. Not only that, they also tried to mislead the VAT detectives with various tricks. In such a situation, the NBR thinks there has been a major evasion by the tobacco company. We will take legal action.”
The VAT Audit, Intelligence & Investigation Directorate on June 8 in 2017 decided to audit the activities related to revenue evasion of Dhaka Tobacco Industries Limited . An eight-member team headed by an Assistant Director was formed at that time. However, the company did not provide documents to the team at the initial stage. The investigation team had to send nine letters successively to get the records.
Later, a case was filed against the company for not submitting the documents. Later, when Dhaka Tobacco Industries Limited provided some documents, the team prepared the initial audit report.
A review committee was also formed. The committee also issued multiple letters for submission of various documents. There too, evidence of non-cooperation has been found against Dhaka Tobacco Industries Limited in various ways, including not providing documents.
Later, the issue of revenue evasion came to the fore by verifying the relevant documents, including the company’s account statement, VAT documents and annual report of the CA firm.
The team assesses non-payment of revenue. While looking for the reason for the delay in providing the documents, the issue of Dhaka Tobacco Industries Limited being sold and transfer of ownership came to the attention. However, they were deliberately delaying the submission of audit documents to hide the evidence of revenue evasion, said the VAT detectives.
A review of the company’s declaration showed that tobacco leaf, cigarette paper, tipping paper, adhesive, aluminium fuel, glycerine, carton, plug wrap/white beige paper, BOPP, chemicals, shell and slide are used for cigarette production.
The team takes into account the lowest priced cigarettes in the calculation of Dhaka Tobacco Industries Limited's revenue avoidance. In view of the company’s application, on November 8 in 2022, the software of the head office of Dhaka Tobacco Industries Limited as well as Akij Bhavan was verified and some information stored in the computer was found.
However, they were not able to show any information stored by the server. It is also alleged that the higher authorities of the company did not cooperate for a long time and tried to mislead by providing different information at the last stage.
Officials at VAT Audit, Intelligence & Investigation Directorate informed that the first eight-member audit committee verified the company’s purchase account book, sales account book, submission (Musok-19), current account book, annual audit report and filed statements of accounts as per the existing VAT Act from July 2014 to 2018.
The committee found irregularities of 9 thousand 646 crore 84 thousand 182 taka for customs and 2 thousand 598 crore 48 lakh 72 thousand 735 taka for VAT. Tk. 10 thousand 720 crore 64 lakh 10 thousand 57 were for interest and 153 crore 95 lakh 34 thousand 520 taka were avoided for health development surcharge. A total of 23 thousand 119 crores 92 lakhs 45 thousand 495 taka were evaded.
As the Dhaka Tobacco Industries Limited objected to the preliminary audit report, another committee was formed.
Taking into consideration the objections, the second five-member team was formed under the leadership of a Deputy Director. The re-verification committee first reviewed the preliminary audit report, documents submitted by the cigarette company, documents collected from various sources like banks, commissionerate concerned, statements of the company and the unpaid or evaded supplementary duty from FY 2014-15 to 2017-18.
It was found that 8 thousand 280 crore 18 lakh 12 thousand 402 taka were evaded as supplementary duty, while 2 thousand 343 crore 85 lakh 70 thousand 114 taka for VAT, 142 crore 73 lakh 38 thousand 690 taka for health development surcharge, and 24 crore 46 lakh 73 thousand 563 taka for crude source.
In total, the committee revealed the information of revenue evasion of Tk 10 thousand 791 crore 23 lakh 94 thousand 769 taka. Interest is payable from the later date till the date of payment as per Section 37 (3) of the VAT Act, 1991.
The special intelligence team of the VAT Audit, Intelligence & Investigation Directorate prepared the final report after six long years of document manipulation and verification of objections.
After submitting the report to the director general of the directorate department on April 12 this year, and it was sent to the National Board of Revenue (NBR) for collection of duty and VAT. The NBR chairman, however, directed a member of the body to investigate the matter further. The investigation is now going on, said an NBR official.
Analyzing the intelligence report, it has been found that the Dhaka Tobacco Industries Limited has evaded 1 thousand 166 crore 34 lakh 16 thousand 159 taka in supplementary duty in 2014-15 financial year from raw material to final production.
Advocate Syed Mahbubul Alam, an expert on public health law and tobacco control; told the Bangladesh Post that tobacco companies apply various tactics to spread their products, while the companies also apply tactics to evade government revenue. He hailed the government move against revenue evasion of the Dhaka Tobacco Industries Limited.
Talking to the Bangladesh Post, Aminul Islam Sujon, technical adviser-- Road Safety and Tobacco Control at US-based global public health organisation Vital Strategies; said that tobacco companies in Bangladesh usually apply various tactics to retain smokers and weaken the impact of tobacco tax. The huge amount of tax evasion by a tobacco company in Bangladesh is unacceptable. The authorities concerned should take legal action to realize the amount from the cigarette company, he added.
