TAX NEWS - June 2010

Bangladesh Tax: Massive VAT reforms on cards

Bangladesh government is set to undertake a massive reform programme to raise revenue income through value added taxes (VAT) next fiscal year.

The programme includes appointment of an outsourcing company under public private partnership, provision for special search, formation of special courts to try large tax evasion cases, lower the truncated base and tariff value and introduction of a digital tax system.

National Board of Revenue data shows there are 6.36 lakh VAT registered firms at present, of which only 15 percent or less than one lakh submit monthly VAT returns.

To detect the registered firms that do not submit monthly VAT returns and strike those off the list, the reforms have been proposed with a provision to appoint an outsourcing company.

This outsourcing company will have to establish offices in all functional VAT commissionerates to scan VAT returns and perform data entry operations.

The outsourcing company will bring the tax-dodging firms under a regular VAT net. It can be appointed for a period of five years to do the job. By that time, NBR could develop its capacity for data entry and other related operations.

The VAT registration system will be processed through computers so that all relevant information, such as names of the taxpayers that submitted tax returns, the amount of taxes paid and the exemption received, could be known easily. Under the existing manual system, it is not possible to get this information. The outsourcing company will help NBR in this regard.

Another major step under the NBR plan is phasing out of the existing tax payment system through treasury challans (receipts). Tax payment through credit or debit cards and certified crossed cheques will be introduced. An amendment to the law in this regard has been proposed in the budget for the next fiscal year.

In addition, an amendment was also proposed to try the cases of the large VAT dodgers in special judges' courts instead of magistrate courts. However, in filing such cases, prior permission of an NBR official, not below the rank of assistant commissioner, will be required.

The special judge will enjoy the power of further enquiry, attachment of property and seizure of assets. In case of a further enquiry, the special judge will give a deadline, not exceeding six months, to the investigation officer.

The amendment will enable the officer to unearth any VAT evasion case, as he will be empowered to instantly stop any vehicle, enter production unit and inspect and search the goods kept or loaded there in the interest of his probe.

Although a complete reform in this regard is not possible within the next financial year, some measures have already been taken to this end.

One major reform is lowering the truncated base of the items under VAT in phases. The 2010-11 budget proposed withdrawal of 11 service sectors, including advertising agencies, courier services and picnic and shooting spots, from such truncated base. Consequently, the sectors will have to pay 15 percent VAT on gross sales from the next fiscal year. Currently, the sectors pay 1.5 to 9 percent tax on a reduced value instead of gross value.

At present, VAT is also imposed on different commodities. The number of such commodities has been proposed to bring down to about 100 in the proposed budget. The budget also proposed a rise in the tariff values of these commodities in line with the market value. These items include buses and trucks of different sizes, electric transformers, coal, biscuits, soybean oil and palm oil.

The NBR sources pointed to the fact that tax exemption every year is equivalent to 2.24 percent of GDP.

So, the officials said, the next budget has proposed to shorten the list of items seeking tax exemption.

From the next fiscal year, the regional offices of NBR that exceeds their targets will be awarded 10 percent of the extra collection as incentives. Every member of the staff will receive such incentives.