VAT rules now up for amendment

With a new law put on the backburner, government's revenue authority decided to amend the existing value-added tax (VAT) rules to digitise the taxing.

Sources said under the amended rules, the revenue board would carry out digitisation of the system and continue with the VAT Online Project (VoP).

The amendments to the VAT rules will be made under the existing VAT law, framed in 1991, keeping all of its major provisions unchanged.

Truncated base, tariff value, package VAT and a wide range of exemptions will remain unchanged in the amended rules.

There was widespread confusion over continuation of the digitisation activity in VAT system after deferment of the new VAT and Supplementary Duty Act 2012. Enforcement of the new law, passed by parliament in 2012, has been postponed for two years.

It was scheduled to come into force from July 1, 2017, but was jettisoned amid protest by businesses.

The National Board of Revenue (NBR) recently sent a summary to the finance minister for permission to continue with the VoP and amend the exiting VAT rules for the sake of continuity of digitisation activity.

The board apprised the finance minister of benefit of going online in VAT registration, payment and so on seven counts.

An official said the ministry of finance has approved the NBR-forwarded summary on continuity of the VoP project, in view of the seven-point spinoffs from the modern system.

However, the revenue board has yet to make any official declaration to this effect.

The project cost will increase by Tk 1.0 billion to around Tk 6.50 billion for extension of the VoP project period by two years.

The board has so far spent Tk 1.62 billion under the VoP project. There are three international agreements and some local agreements with the VoP. Vendors are working under the agreements involving Tk 3.10 billion.

Officials said the continuation of online VAT system would help the government avoid possible complexities with the international development partners like the World Bank and the International Monetary Fund (IMF) and in implementation of the agreements.

Both the multilateral donors were involved with the framing of the new VAT law. The WB is the largest fund provider for VoP. The agreement with the WB was related to implementation of the law.

Officials said the WB may continue the fund support if the revenue board carries on the online activities.

In the summary, the NBR explained the details of positive impact of digitization on expansion of VAT net and providing service to businesses.

With the online system in place, the VAT authorities will be able to increase the number of VAT returns to 0.1 million from existing 32,000 returns, the NBR wrote in the summary.

Currently, there are 8.0 million business-identification numbers (BIN).

There have been huge capacity-development activities done for VAT administration in the last three years with focus on online system of taxing. Sources concerned said the officials are working for amending the VAT rules under the VAT law of 1991 with the focus on digitization.

A number of existing forms would require amendments while new forms have to be incorporated into the existing VAT rules, officials said.

Some of the features of new VAT and SD act might be reflected in the amended VAT rules after the amendment, they added. The VAT wing has sent a number of draft Statutory Regulatory Orders (SROs) to make previous orders dysfunctional. In one summary the NBR also sought permission of the finance minister to continue the capacity-development activities of the NBR.

The NBR said the existing VAT law turns a complex one with various changes made every year.
"Pro-VAT mentality has yet to develop in the VAT administration as the government has implemented the VAT law with the administration merely fit for excise and sales tax," it is stated in the summary.

The VAT net got narrowed with only 32,000 VAT returns for a lack of administrative capacity, it said.

A select number of taxpayers are shouldering heavy burden of VAT. As such, many are unwilling to come under the tax net. "Bangladesh ranked lower in the doing-business index due to unskilled tax administration and absence of investment-friendly environment," the note reads.

The new VAT and SD act was passed in 2012. To do the groundwork for enforcing the law, the NBR started VoP project in 2013.

The board pointed out a set of positive impacts if it continued with the online activities.
Cost of doing business and start-up time for business will be reduced with the online VAT registration, payment, return submission and other processes, the summary says.

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