Home ›› 15 Dec 2021 ›› Front
Sectors where the National Board of Revenue (NBR) collects value added tax (VAT) from increases in the national budget every year, and so does VAT collection.
But VAT collection is largely dependent on certain sectors. There are many sectors where less than 1 per cent of the total VAT is collected from.
NBR data shows 81 per cent of the total VAT is usually collected from only 10 sectors, including cigarettes and tobacco products. The remaining 19 per cent comes from others.
Experts say the expected VAT is not being collected despite the increase in the number of VAT-paying sectors. Besides, the NBR has no data on the amount of VAT evaded every year.
Officials uncover VAT evasions of hundreds of crores of taka every year, which experts believe is a small part of the total evasion. The scope of VAT collection is huge and the NBR does not have what it takes to collect VAT properly, experts added.
According to NBR data, Tk 28,800 crore came in VAT and supplementary duty (SD) on cigarettes in the fiscal year 2020-21, which was 30 per cent of the total VAT and SD collected that year. This was one of the 10 sectors where 81 per cent of the total VAT comes from.
Mobile and its services, natural gas, construction, advance VAT, suppliers, electricity, banking services, and retail and wholesale businesses accounted for 51 per cent of VAT in FY21.
“The share of mobile and its services in total VAT collection was 12 per cent in FY21. Insurance, electricity, and cement also contribute significantly to VAT collection,” said an official of the NBR.
He said the contribution of other sectors in total revenue would increase. “What is now needed is policy support.”
Experts said 19 per cent of the total VAT is levied on hundreds of sectors, including manufacturing, services, and many wholesale and retail businesses. But taxes from these sectors are not collected properly, they added.
Former NBR chairman Abdul Majid told The Business Post it would not be possible to cover the big sectors without automating the whole VAT system.
“Sectors where VAT can be collected from have expanded after 1990, and so did the economy. But the VAT authorities at the time did not have the required skilled manpower to collect VAT from the expanding economy,” he said.
He said the VAT authorities need skilled manpower even at present.
The NBR decided to remove the limitations in the VAT law in 2012 and also wanted to automate the whole system, he further said.
A large amount of VAT, he said, could be collected from informal sectors as every citizen was paying VAT directly or indirectly.
“But the calculation is much complex. The NBR does not have the system and manpower to do that. It can only calculate the data of big sectors. That is why a large portion of VAT is evaded,” he explained.
Majid said there are also allegations that VAT collected from the people is not deposited in the government treasury properly.
VAT evasion allegations would continue without automation and the government would keep losing a large amount of VAT, he said. “Machines will calculate everything.”
The former NBR chairman suggested installing electronic fiscal devices (EFDs) in all businesses and digitalising the whole VAT system.
As consumers pay VAT when purchasing products, it is also called consumer tax, according to the NBR. VAT is levied at four levels – import, production, services, and wholesale and retail trade – at applicable rates. The standard VAT rate in Bangladesh is 15 per cent.
On the occasion of VAT day in 2010, the NBR published an article on Bangladesh’s VAT system, which said half of the VAT is evaded. The total VAT collection was expected to be Tk 40,000-45,000 crore according to the size of the gross domestic product (GDP) that year. But collection finally amounted to Tk 27,000 crore.
Experts believe 50 per cent more VAT could still be collected every year. They also said the expected VAT cannot be collected due to inconsistencies and complexities in the law, officials’ incompetence and involvement in corruption, and a lack of awareness and full automation.
Against this backdrop, National VAT Day 2021 was celebrated on December 10 when VAT week started. The NBR has been observing VAT day since 2010 to encourage people to pay VAT.
The theme of this year’s VAT day is “Pay VAT online, take part in nation-building”.
NBR Member (VAT implementation and IT) Abdul Mannan Shikder told The Business Post some policies are needed to ensure that businesses cannot evade VAT.
He said, “We have offered VAT exemptions to various sectors, but some people misused this. That is why we have some problems with small business policies. We are trying to formulate policies for this sector. We have also provided EFDs for all businesses.”
“We are trying to find out businesses that are eligible to pay VAT but have not registered yet. We are also trying to create awareness and change the VAT culture by observing VAT day and VAT week,” he added.
