A large scale digital initiative has been undertaken in the last decade and a half with the aim of making the VAT system modern, transparent and paperless in Bangladesh. One part of this initiative was the introduction of Electronic Fiscal Device (EFD) and Sales Data Controller (SDC). Although about 347 crore rupees have been spent on the implementation of the project, the actual picture is not as expected.
In the first phase, approximately Tk 317 crore was spent on procuring around 10,000 EFD and SDC devices from abroad. However, due to various technical limitations, poor quality equipment, lack of adequate training and lack of effective implementation at the field level, a large part of these devices could not be used effectively.
Revenue collection is much lower than potential
According to the calculations of experts, it is possible to collect about 1 lakh 80 thousand crores of VAT annually from about 75 lakh retail and wholesale business establishments of the country. But in reality only about 5 thousand crore rupees are being collected.
That is, almost 97 percent of the VAT collection potential is not reaching the government treasury. Government is losing huge amount of revenue due to duplicate invoices, parallel billing and non-use of EFDs even though consumers pay VAT regularly.
The goals of the agreement were not met
According to the contract with Genex Infosys, the private technology company that was given the responsibility of implementing the EFD project, there was a plan to install three lakh devices in Dhaka and Chittagong within five years.
To this end the company was to undertake the supply and maintenance of machinery at its own expense and was to receive a fixed commission on the VAT collected.
But after two years of the stipulated time, only 11 thousand to 16 thousand devices have been installed. As a result the actual progress of the project is lagging far behind the set targets.
Thousands of devices are disabled
After the start of the EFD program in 2020, EFD and SDC devices have been installed in more than 25,000 businesses at various stages.
But due to lack of interest from traders, equipment malfunctions, lack of regular maintenance and poor supervision, a significant portion of these devices are currently lying idle or unused.
EFD lottery was not popular
NBR introduced EFD lottery system in 2021 to encourage people to receive VAT invoices.
Although prizes up to a maximum of one lakh rupees were announced through monthly draws, this initiative did not receive the expected response.
According to analysts, lottery programs fail to play an effective role due to lack of correct information in VAT invoices, complexity of prize collection, buyer’s disinterest and lack of awareness. It was later discontinued.
Government is losing revenue in parallel billing
Field investigation showed that EFD machines are installed in many business establishments but they are not used regularly.
Many organizations are using separate software or handwritten receipts to close EFDs with excuses such as “server problems”, “no internet”, “power failure” or “machine breakdown”.
As a result, even if the VAT is collected from the buyer, the information does not reach the NBR servers and the revenue goes elsewhere instead of being credited to the government treasury.
Successful abroad, why fail in Bangladesh?
Similar digital VAT systems have been successfully implemented in various countries around the world.
Countries like Rwanda, Portugal, Uganda, Kenya and Tanzania have not only relied on technology; Rather, real-time data, risk-based audits, e-invoicing, strict enforcement and financial incentives for buyers have been introduced together.
As a result, there has been a significant increase in VAT collection in these countries and tax evasion has come under control.
Expert opinion
According to economics and tax experts, the major weakness of the EFD scheme in Bangladesh is the major lack of coordination between planning and implementation.
According to them-
• Only deployment of technology does not reduce tax evasion.
• Need for AI-based surveillance and real-time monitoring.
• To develop an integrated digital database of taxpayers.
• E-invoicing should be made mandatory.
• Automation will not be effective if corruption and administrative accountability are not ensured.
Buyer paying VAT, but where is the money going?
‘Parallel Billing’ has been discussed as a new VAT evasion strategy in the country’s retail market. In this manner, many businesses are using their own software to create fake bills that look like NBR EFD receipts. The bill mentions the VAT rate, product details and tax amount but does not contain NBR’s unique identification number or QR code. As a result, even if the buyer pays VAT, that money is not credited to the government.
The investigation found information of huge amount of revenue evasion
Various operations by VAT audit, intelligence and investigation officers have found evidence of large-scale VAT evasion against multiple companies. Sources said that VAT evasion amounting to Tk 1,586 crore has been identified by verifying the accounts of 126 companies in the last five years.
According to analysts, various technology-based projects ranging from ECR to EFD have been undertaken but poor planning, inefficient implementation and lack of accountability have not yielded the desired results.
Despite huge potential, revenue collection is very low
According to Bangladesh Shop Owners Association, there are about 7.5 million businesses in the country. Although there is a possibility of collecting 1 lakh 80 thousand crores of VAT annually from this sector, currently the income of the government is only about 5 thousand crores.
This means that a large part of the potential VAT is not collected by the revenue sector. But consumers are regularly paying VAT while buying goods and services.
Irregularities are increasing with weak monitoring and small fines
Although the VAT Act has strict penalties for tax evasion, it is not enforced in many cases. At present, there is a penalty of up to Tk 10,000 for not using EFD or not providing a valid receipt.
According to economic analysts, the fine is not likely to create a deterrent for large businesses that transact large amounts of money every day. As a result, the trend of breaking the law continues.
Traders’ opinion
The leaders of the Bangladesh Shop Owners Association say that the VAT automation project has not yielded the expected results despite spending significant money. According to them, in addition to using technology, training of traders, practical planning and input of relevant stakeholders were essential.
Reluctance to use the technology
According to tax experts, many small and medium traders still consider cash transactions safer. As a result, there is a tendency to issue paper bills or informal receipts instead of using EFDs.
Besides, it is not possible to verify all sales data due to lack of modern artificial intelligence (AI) based monitoring system. In many cases a part of the actual sale is registered in the EFD while the rest remains outside the system.
Expert assessment
According to economists and tax experts, deploying technology is not the ultimate solution. A digital VAT system will never achieve the desired success unless effective oversight, transparency, accountability, risk-based audits and AI-based monitoring are implemented together.
According to them, integrated digital infrastructure should be developed by learning from the experience of internationally successful countries in VAT collection. Raising awareness and ensuring strict enforcement of laws—both traders and consumers—may be the most effective way to reduce revenue evasion.
Times BD/ Zaman
