The elusive quest for VAT automation | The Daily Star
12:00 AM, June 30, 2020 / LAST MODIFIED: 01:55 AM, June 30, 2020

The elusive quest for VAT automation

About Tk 238 crore spent out of the project allocation of Tk 690 crore in seven-odd years

Much has been said about the modernisation and automation of the value-added tax system in Bangladesh over the last decade. Yet, the automation of the VAT administration is halfway, although the project's tenure is supposed to come to its end this year.

Businesses say they can get registration online and file a return electronically.

Still, they have to make a trip to the field offices of VAT under the National Board of Revenue (NBR) along with papers -- a hassle from which they were supposed to get relief once the automation was put into action.

So far, Tk 238 crore out of the total estimated cost of Tk 690 crore for the VAT improvement project has been spent. And a large chunk of the money is likely to remain unspent.

Dubbed as a game-changer for improving the collection of the indirect tax and widening the country's capacity to finance expenditure, the government took the VAT Online Project (VOP) in 2013 to implement the VAT and Supplementary Duty Act 2012 and end the manual system and more than two-decade-old VAT laws.

The idea was also to reduce the cost of businesses, improve compliance and increase revenue collection in the country, which has the lowest tax-GDP ratio in South Asia.

Initially, the NBR had planned to start with a uniform 15 per cent VAT rate on all goods and services, moving away from multiple VAT rates.

But its enforcement was delayed on several occasions for a lack of preparedness of the revenue administration and opposition from the businesses, particularly from the Federation of Bangladesh of Chambers of Commerce and Industry (FBCCI).

Finally, the government began to implement the law from July last year with multiple VAT rates to appease businesses.

The issue of the new VAT system once came to the spotlight after the FBCCI demanded an investigation against consultants and government officials for their failure to establish the automated VAT system and for creating new complexities for businesses.

FBCCI President Sheikh Fazle Fahim at a press conference said they had been demanding an easing of rules so that businesses can comply effortlessly and single-digit VAT.

The government pushed back the implementation of the new law by two years for review.

"But they did not work in the two years. We got a letter in November 2018, which showed that a law was sent hastily," he said.

Revenue officials involved with the VOP said they could not proceed for the automation between July 2017 and June 2019 as a structure of the online system was planned in the light of VAT and SD Act 2020.

Hence, when the implementation was delayed, they could not go for the rollout of the online VAT registration and piloting remote submission of VAT returns owing to the opposition of a section of officials in the field and businesses as the VAT law 1991 was in effect at that time.

So, they had to wait for the finalisation of rules to incorporate the changes in the system. 

"How could we proceed with the work of automation if rules were not finalised?" said Syed Mushfequr Rahman, a former project director of the VOP.

Md Rezaul Hasan, a former member of the NBR VAT Policy and project director of the VOP, said they established data centre and call centre as well as carried out other infrastructure-related works during the delayed phase.

The original plan of automation had to change because of the incorporation of various provisions of the VAT law in 2019. As a result, the system has not become user-friendly.

There had been inertia among a section of businesses for the automation.

Hasan, however, said there has been some achievement of the VOP.

"At least, the NBR has got a structure for automation," he said, adding that planning and design have been done and more than 50 per cent of the project has been implemented.

Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said significant works could not be done.

"But whatever is done, the NBR could not retain the achievement. Field level officials of the NBR did not want automation to proceed."

Automation of VAT registration began but fake data was inserted into the system to frustrate it, he said, adding that firms still have to visit field offices to complete registration and submit documents.

Mansur, who was also involved with the VOP, said the NBR can probe automation-related activities done so far.

But the government and the FBCCI are also responsible.

"The momentum was lost because of the negative role played by the FBCCI. We had been working in line with the 2012 law. Now, the way the law has been changed, it is not implementable. This is affecting businesses and SMEs are suffering."

The FBCCI has been successful in blocking a good law and the business community has to live with the consequences, Mansur added.

Kazi Mostafizur Rahman, project director of the VOP, said there has been progress in automation. "It would be wrong if anyone says no automation has taken place," he said.

The number of online VAT return submissions was nearly 3,000 when it was launched in October last year. The number submitted this month is nearly 39,000, he said.

"It is a big achievement. We are contacting businesses and trying to solve the problems they face so that submission increases. We are also preparing to launch e-payment soon."

By October, the VOP will be able to launch all the modules except those related to the audit.

"We will meet all the functional requirements of the project by the end this year."

Firms are required to visit offices with papers when they are requested for additional information, Rahman added.

Contacted, Fahim said there are records of all the communications about the 2012 VAT law from 2012 to 2019.

He said the FBCCI leadership is honorary responsibility for economic advocacy.

Simplification of some provisions and complexities that lead towards arbitrary decisions and harassments of SMEs and large enterprises at the hands of officers were issues of contention.

A seven-point agreement to simplify some clauses was reached and it was not upheld later.

"The FBCCI observation of wider net lower tariffs is a move in the right direction. The FBCCI is for lower tariff automated integrated systems. It will contribute towards a revenue-friendly and investment-friendly revenue regulatory regime," he added.


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