Bangladesh government has recently announced its federal budget for the financial year 2017-2018. Budget has brought several changes for iron and steel industry. For instance, government has imposed 15% VAT on most of the goods including steel rods, which was earlier categorized under special category and attracted negligible VAT rate.
Other changes include, abolishing specific duty (fixed duty) on scrap, sponge iron ,pig iron and ingots and imposing a 5% regulatory duty and 15% VAT on imports.
Whereas, regulatory duty on billets have been kept unchanged at 20% and VAT at 15%. Notably, government had imposed this duty in last budget in order to promote steel melting.
What does New Duty Structure Mean for Billet Exporters?
Billet exporters are excited with current changes made by the government and are hopeful that trade may resume. Billet imports to Bangladesh almost dried up since last many months. To justify this, at one time country used to import 2-2.5 million tonnes of billet every year.
New structure explains that VAT paid on imports can be adjusted with the sales made in domestic market. Which means, if a rolling mill is importing billet and paying a VAT of 15%, he is eligible for input credit at the time of value addition , which was not the case till last financial year when VAT rate was very low on steel rods.
We have tried to explain impact of change in duty on billet imports pre-budget and post budget by an example. We have assumed that current imported billet price to Bangladesh is USD 420/MT.
| S.No. | Particular | Before Budget | After Budget |
| A | CIF Value | $ 420 | $ 420 |
| B | Tariff Value | $ 400 | – |
| C | RD @ 20% | $ 80* | $ 84 |
| D | VAT @ 15% | $ 72 (B+C) | $ 76 (A+C) |
| E | Landed cost (A+C+D) | $ 572 | $ 580 |
| F | Input credit of VAT | Not Eligible | $ 76 |
| G | Final Landed Cost | $ 572 | $ 504 |
* Tariff value of $400/MT was fixed in last budget, on which 20% RD was charged
RD – Regulatory duty
Earlier, 15% VAT paid on billets were not refundable, where as post budget steel mills can claim input credit at the time of value addition (making re-bars), explains a local steel maker based in Dhaka. This means, pre-budget, net cost of importing billet for a re-roller was $572/MT, which will now be $504/MT.
Billet imports may resume post budget but volumes will be a question, since several steel mills have set up melting facilities and will prefer scrap, which attracts a 5% duty, he further added.
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