Revenue collection falters amid VAT rule changes

Revenue collection has slowed despite a series of measures by the National Board of Revenue (NBR) to boost collections, while frequent changes in VAT rules are creating uncertainty for businesses, particularly small traders.

The NBR has been set a revenue target of Tk604,000 crore for the current fiscal year, about 47 per cent higher than the previous year's target. The tax authority is working to curb tax evasion, recover unpaid taxes and expand the tax net.

Yet revenue collection has failed to rise as expected. The NBR has not officially released its collection figures for the first three months of the current fiscal year, from July to September.

An NBR official told The Daily Observer that the delay was partly caused by changes in the income tax law and the VAT return system.

The government introduced a three-month VAT return system in the latest budget to reduce the burden on businesses. Under the new system, businesses can submit VAT returns every three months instead of every month.

But VAT collection fell in the first two months of the new system. The NBR is now considering bringing back the monthly VAT payment system.

The VAT policy wing of the NBR has already sent a letter to the Finance Ministry on the issue. The government plans to discuss the matter with businesses before taking a final decision.

NBR officials said no final decision has been made. One possible option is to keep the three-month VAT return system but require businesses to pay VAT every month. They said this could reduce the burden on businesses while helping the government collect revenue regularly.

Temporary figures show that VAT collection fell by about 20 percent in July and August compared with the same period last year.

The NBR collected Tk 9,301 crore in VAT in July, down from Tk 11,547 crore in the same month last year.

In August, VAT collection stood at Tk 8,362 crore, compared with Tk 11,081 crore a year earlier.

The number of VAT returns also fell. In June, around 328,000 VAT returns were submitted. The figure dropped to about 306,000 in July.

Business leaders say small traders are not ready to return to a monthly VAT return system.

Helal Uddin, former first vice-president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) and president of the Bangladesh Shop Owners Association, said small businesses face problems with online VAT returns.

He said many small traders do not understand the online system. They also face problems with internet and electricity services, as well as technical problems with the NBR's system. Offline submission can also involve administrative difficulties, he said.

There are around 800,000 VAT-registered businesses, or businesses with a Business Identification Number (BIN) in Bangladesh. Around 500,000 VAT returns are submitted each month.

The NBR is also planning to bring more small businesses into the VAT system.

It wants to increase the number of VAT-registered businesses from around 800,000 to 2 million within a year. 

The plan includes expanding VAT registration from cities to villages and union-level areas.

Under the proposed system, small shops and businesses could pay a fixed amount of VAT each month. The proposed amount is Tk 500 for businesses at union level, Tk 1,000 at upazila level and Tk 2,000 in district headquarters and district municipal areas.

The VAT could also be paid through mobile financial services.

The NBR says the main aim is to bring more businesses into the formal tax system. It has already started sending letters to businesses asking for information such as their names, addresses and VAT registration numbers.

Under the existing law, businesses with annual sales or turnover of more than Tk 50 lakh must register for VAT. Registered businesses generally pay VAT at a rate of 15 per cent.

The proposed fixed VAT system would bring more small shops and businesses into the VAT net.

Business leaders, however, are concerned about frequent changes in NBR decisions.

Helal Uddin said changing decisions every few days would make it harder for businesses to operate. He also criticised the possible introduction of a fixed or package VAT system for small businesses.

He said small businesses are already facing lower sales and have to pay income tax, VAT and other costs.

Former NBR chairman Dr Mohammad Abdul Mazid said the tax authority should make the VAT collection process simpler. He welcomed the plan to expand the tax net if it could be implemented in a simple way.

Consumer rights group Consumers Association of Bangladesh (CAB) president AHM Shafiquzzaman said the government must first clearly define what it means by "small businesses".