60,000 restaurants evading VAT in BD

Needs to conduct regular raids

Zarif Mahmud: The restaurant business is booming now. It is running all over the country, including the capital Dhaka, at every corner of the small and big roads, and even in the remote villages of Chalan Bill. Foodies are also flocking to restaurants. The government is not getting the desired revenue from this sector even though more than lakhs of rupees are traded every day.
Economists say that if the NBR is strict in stopping VAT evasion in the hotel-restaurant sector, it is possible to get at least three times more VAT from this sector. Because people with family-relatives-friends are now regularly going to various famous restaurants and spending money. There are many restaurants where you have to pay a bill of Tk 1,000 to Tk 2 thousand for playing a little. Again, one person has to pay a meal bill of Tk 8,000 to Tk 10 thousand or more in a famous restaurant, the cost is more if you play with a few family members.
As a result of the change in people’s eating habits and tastes, new restaurants are also increasing in the district and upazila cities. Young entrepreneurs are also investing in this sector.
Many chain restaurants are also gaining popularity in the developed world.
Dhaka has now become a restaurant city. There is no alley in Dhaka where multiple restaurants cannot be found. Small and big local and foreign hotels and restaurants have also been built in the residential buildings. In the meantime, restaurants have been given the status of an industry by the government.
But surprisingly, these hotel-restaurants are deducting money from the consumers’ pockets. But the National Board of Revenue (NBR) is not getting the desired rate of VAT from this sector. There are complaints that all big and small hotels and restaurants are simultaneously evading VAT.
However, the NBR has fixed the VAT for the hotel-restaurant sector at only 5 percent. However, earlier all types of restaurants had to pay 15 percent VAT. In the first phase in 2021, the VAT of air-conditioned restaurants has been reduced to 10 percent and in the next phase, 5 percent in 2022. Still NBR is not able to collect VAT at desired level.
A restaurant named ‘Royal Village’ has been doing business for a long time in Manik Nagar Bishwa Road area of the capital. On the face of it, despite having EFD (Electronic Fiscal Device) machines, this air-conditioned restaurant is not issuing VAT invoices to consumers. They are openly evading VAT to the government in order to retain customers as the prices are comparatively low. It has been seen that if the consumer spontaneously asks for the ECR receipt of VAT, then the concerned of ‘Royal Village’ collects extra money. Not only Royal Village is on the list of VAT evaders, hundreds of restaurants in the capital are also evading revenue to the government.
According to the VAT Act, it is the responsibility of hotel-restaurants to collect VAT from the customer against the goods and services and deposit it into the government treasury every month. But even if they collect VAT, they do not deposit it in the government treasury.
A couple of years ago, when NBR conducted regular raids across the capital to prevent VAT evasion, the sensational information of VAT evasion by many famous restaurants came to public. Restaurants like Purnima Restaurant in Gulshan, Chef’s Table in Madani Avenue, Star Restaurant in Dhanmondi, Khana Khazana in Gulshan, The Mirage, Raw Canvas were fined. In 2022, allegations of VAT evasion were also raised against elite hotel Pan Pacific Sonargaon.
In the same year, the VAT Intelligence and Investigation Department uncovered the VAT evasion of Dhaka Regency Hotel. In 2020, allegations of VAT evasion were raised against Lakeshore Hotel in Gulshan. Besides, there are allegations that hundreds of hotel restaurants in Cox’s Bazar, a tourist city outside Dhaka, are evading billions of rupees of VAT every day.
Before this, a survey was conducted by the VAT Intelligence Department in 2021. According to the survey, four out of every five businesses do not have a BIN. They are doing business without registration. Meanwhile, there is an initiative to set up Electronic Fiscal Device (EFD) machines to increase VAT collection at the retail level, but it is not fruitful due to technical errors.
In this context, commissioners of several commissionerates say that EFD machines are being installed to ensure VAT collection from hotel restaurants.
NBR member Dr. Moinul Khan told, NBR is active in collecting VAT at the retail level. 16,000 new EFD machines have been installed from July last year to February this year. Another 60,000 machines will be installed in Dhaka and Chittagong by next June.
It should be noted that in the seven months of the current financial year (July-January), the total VAT collected is Tk 77 thousand 224 crores. The target of VAT collection in these seven months was Tk 80 thousand 517 crores. That is, NBR is Tk 3 thousand 293 crores behind the target in VAT.
A target of Tk 1 lakh 59 thousand 100 crores from VAT has been set for the current financial year.
Those concerned say that pressure has been created on a handful of establishments without collecting VAT from hotels and restaurants through strong measures. VAT is now being collected from private universities as well. Apart from this, the National Board of Revenue (NBR) has decided to impose VAT on the tickets of Metrorail passengers, the most popular public transport in the capital. Due to VAT, the ticket price may increase by Tk 3 to Tk 15 depending on the distance. It is criticized from various sides. Dhaka Mass Transit Company Limited (DMTCL) has written to NBR and Road Transport Department to reconsider this decision.
Meanwhile, the World Bank has said that Bangladesh has been deprived of VAT worth about Tk 2 lakh crores in one fiscal year. In the fiscal year 2018-19, the government was able to collect only Tk 85 thousand crores of VAT. That is, two-thirds less VAT was collected than the recoverable VAT that year.
However, economists see a huge potential for VAT collection in the restaurant sector. Even NBR thinks this is a promising sector. NBR Chairman Abu Hena Rahmatul Munim recently participated in a pre-budget discussion with businessmen in Rajshahi, where he said, “One of the most profitable businesses in the country is a car business and the other is a restaurant.”
NBR chairman said, ‘I sometimes think that when the job is over, I have to start a restaurant business. I think seriously. I want to do this business. That’s because when you become a developed country, you won’t get people to cook and cut fish in your house. If I don’t get workers and I spend my time doing other things than cooking myself, I can earn more. When this situation is created, people’s dependency on restaurants will increase. This is the case in all developed countries. That’s why it seems that the restaurant business will be better in the future.
The Institute of Cost and Management Accountants of Bangladesh (ICMAB) has proposed a tax of Tk 50 per person for weddings and birthdays in hotels and restaurants. In the budget proposal submitted to the National Board of Revenue (NBR) recently, it has been stated by ICMAB that if a hotel, restaurant or community center is booked for entertaining more than 100 guests in a social event, advance income tax at the rate of Tk 50 per guest can be charged.
In this context, ICMAB member Syed Abdur Rahman Khan said, “Many people of the country spend a lot of money even if they are not covered by taxes, basically this proposal is to bring them under the tax to some extent.” He thinks that the ratio of taxes and GDP of the country is low. In order to increase it, the scope of tax should be increased. And hotels and restaurants can play a big role in this.
What is the number of hotels and restaurants in the country?
There is no real information about hotels and restaurants across the country. Bangladesh Bureau of Statistics (BBS) conducted a survey in 2022 to find out the contribution of the hotel-restaurant sector to the Gross Domestic Product or GDP. According to the results of the survey, the total number of hotels and restaurants in the country in 2021 was 436,274, which is 58 percent more than the fiscal year 2009-10. There are 852 hotels-restaurants owned by government agencies. All the rest are owned by individuals and private institutions.
Among them, the number of restaurants running with trade license will be more than 60 thousand. There are hundreds of rooftop restaurants on the roofs of multi-storied buildings in Dhaka, none of which have a valid permit. But now only in Dhaka more than 500,000 hotels and restaurants are doing business according to the concerned officials.
According to the survey, value addition to GDP has increased 8 times in a decade. A decade ago in the fiscal year 2009-10, the value added from hotels and restaurants was only Tk 11 thousand 986 crores. And in the last fiscal year 2019-20, the value addition from the hotel-restaurant sector was Tk 87 thousand 926 crores.
Meanwhile, Secretary General of Bangladesh Restaurant Owners Association Imran Hasan said that their membership in Dhaka is 2700. However, he thinks that there are 27,000 restaurants in total in Dhaka. According to the organization, about 60 thousand restaurants are doing business across the country.
Imran Hasan said, there are many people doing restaurant business, but they are not our members. Many others closed the business after becoming a member. As a result, it is difficult to say the actual number of restaurants. He said that a software is being developed to bring all those who do restaurant business under one umbrella. This software will be launched soon.