Metro rail operator seeks VAT waiver extension

The Dhaka Mass Transit Company Limited (DMTCL) has sought a 10-year extension of the value-added tax (VAT) exemption on metro rail passenger services to keep fares affordable and ensure operational sustainability.

Describing the mass transit system as an “infant industry”, the government agency said that given its need for long-term sustainability and the financial capacity of commuters, the exemption remains necessary.

In a recent letter, DMTCL requested the Road Transport and Highways Division to recommend to the National Board of Revenue (NBR) that the exemption be continued from July 1 this year to June 30, 2036.

The existing 15 percent VAT waiver on metro rail tickets is set to expire on June 30. In its letter, DMTCL presented 17 arguments in favour of continuing the waiver.

It noted that metro rail services worldwide are rarely profitable based solely on fare revenue, with ticket income typically covering up to 65 percent of operating costs, leaving the rest to be subsidised by governments.

The company also cited technical constraints. As there are no passenger classes on the metro rail, VAT would have to be uniformly added to fares. Imposing 15 percent VAT would push the first fare slab to Tk 23 and the second to Tk 34, creating complications for automated ticket vending machines that can accept and return notes only in multiples of Tk 10.

Handling such small-denomination change would require significant technical adjustments, it said.

DMTCL further argued that the metro rail is generating substantial economic benefits. A survey showed that once MRT Line-6 is fully operational, it would save commuters Tk 8.38 crore daily in travel time and Tk 1.18 crore in vehicle operating costs. The system is also easing traffic congestion in Dhaka and reducing pressure on roads.

The country’s first metro rail was formally inaugurated on December 28, 2022, with services initially running from Uttara North to Agargaon before being opened to the public the following day. Operations were later extended to Motijheel on November 5, 2023.

Despite being an air-conditioned service, metro rail tickets have remained VAT-exempt since inception. Around 400,000 people commute on the metro rail regularly, according to DMTCL.