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Establishing a standard VAT system

Md. Abdur Rouf | Published: September 25, 2019 21:28:41 | Updated: September 30, 2019 22:13:29


Establishment of a standard VAT system in the country has been a long-cherished goal. We introduced VAT back in 1991 and have thus a history of VAT practice of 28 years. Within such time, many nations have shown tremendous development in all sectors. We are moving ahead, but we need to accelerate the pace of development. In our VAT front, enough work needs to be done to establish a standard VAT system.

What is a standard VAT system? We do very often refer to revenue-friendly, business-friendly, investment-friendly and, above all, people-friendly VAT system. To put it in a commonsensical manner, it means a system where payment of VAT is not a scare rather a comfort and collection of VAT is not a challenge rather a general practice. Theoretically, such a system requires reasonably lower rate(s), expanded base and exhaustive implementation. The following are imperatives to establish such a standard VAT system, especially in Bangladesh:

Simplified regulations have been a basic element of a standard VAT system. In the absence of simplified regulations, VAT has been the subject of lower and mid-level executives of the business houses in our country. Senior management does not and can not take enough interest in VAT matters. So, to engage people of all strata with the VAT payment and collection process, a stanadard VAT system needs simplified regulations. It may be difficult to prepare simplified regulations. People qualified for this task need to be identified, incentivised and engaged in the preparation of simplified regulations. And once prepared, those negotiations need to be issued.

When simplified regulations are ready, both VAT payers and VAT collectors should be made familiar with those. The VAT payers would be able to learn the  regulations with minimal effort. Thus a large number of people can be brought under the VAT net and payment of VAT would become hassle-free.

A group of skilled professionals are needed to facilitate between the VAT payers and VAT collectors. The number of VAT professionals at the National Board of Revenue (NBR) is too small but the Income Tax and Customs wings of the self-same NBR have a good number of professionals. Citing examples of poor performance of the professionals in income tax and customs arenas, ideas run high among the functionaries of the regulatory body for not developing such professionals under VAT system or making their induction tougher. That has been done in the recent regulations.

To mention importance of developing a skilled professional group in VAT management, let me cite an example from a developed system. On the front page of the Australian GST Legislation (16th edition, 1 January 2013), it is mentioned "No person should rely on the contents of this publication without first obtaining advice from a qualified professional person." So, it is urgent to develop of a qualified professional group in our VAT management system from whom proper advice can be obtained by the VAT payers who need it.

Role of information technology has been immense in the VAT management. Our VAT system has been lagging far behind in the use of information technology. We have recently got an online VAT registration system which is mired in difficulties. It is also expected that we shall get an online return submission system soon. Online communication between the VAT payers and the regulatory authority has not yet been possible in our VAT system.

We need to reach up to such level of the use of information technology where every VAT payer shall remain online. Every sale invoice shall be either instantly stored in the data centre of the regulatory agency or if stored in any other place, the regulatory agency shall have constant access to those data to do effective monitoring. VAT payers need filing any application online followed by quick online disposal of those by the regulatory authority. Online payment of VAT needs to be introduced soon. Disposal of all issues online without physical interaction between the VAT payers and the regulatory agency is a sine qua non for establishing a standard VAT system.

It is easier said than done. The question is from where to start and how. The first component i.e. procedure simplification and dissemination can be addressed first. It will not take a year or two to draft VAT procedure in simple terms. Development of a group of skilled professionals should not require more than a year. We have a huge number of educated unemployed youth. Imparting a short course on VAT, they can be quickly mobilised for field-leavel VAT works. Establishment of an exhaustive information technology system may require a couple of years.          

 

Dr. Md. Abdur Rouf currently works at a World Bank-financed VAT-related project as a Specialist. Opinions expressed in this article are of his own.

roufvat@gmail.com.

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