The VAT Intelligence yesterday withdrew its directive that had asked banks to provide information on discrepancies in turnover figures shown by potential borrowers in returns and annual financial statements.
The move came less than two weeks after the directive was issued, apparently because of pressure from certain businesses.
Hours after the development, the National Board of Revenue (NBR) transferred nine commissioners of VAT and customs, including Syed Mushfequr Rahman, the director-general of the VAT Audit, Intelligence and Investigation Directorate (VATAIID). Rahman signed the letter.
Rahman has been transferred to the VAT Commissionerate Dhaka West. He had headed the VAT Online Project before his assignment as the DG of the VAT Intelligence at the end of last year.
The NBR field office had asked banks to examine documents from loan applicants and alert them if any discrepancies are found.
On June 18, the VAT Intelligence office issued the letter to the central bank and copied the letter to chief executives of banks in a bid to detect evasion and increase collection of the indirect tax, the biggest source of revenue for the government.
In the letter, the wing said businesses furnish their purchase-sales as well as data of financial transactions in their returns submitted to the field offices of VAT. And the government becomes aware of payable and deposited amounts of VAT through the returns.
"So, the return is a very important document under the VAT law and consistency between information provided in the VAT returns and annual financial statements is vital," said the letter.
However, the letter said, during an audit of commercial activities by firms, a discrepancy between annual financial statements/audit report and sales data shown in VAT returns is often found.
"As a result of such activities by taxpayers, actual turnover remains undeclared and the government is deprived of a proper amount of revenue which is undesirable," said the letter, adding that these sorts of activities are a clear violation of the VAT and Supplementary Duty Act 2012 and the Financial Reporting Act 2015.
The VAT Intelligence office cited the anomalies between VAT returns and financial statements and called on banks to examine the documents while considering loan applications of taxpayers.
Similarly, it asked lenders to inform it instantly in case of detection of any dissimilarity in turnover figures and warned that bankers would be responsible if any anomalies are detected later.
Yesterday, the VAT Audit Intelligence office said the previous directive was issued as a part of its strategy to increase revenue collection.
However, it is important to keep the wheel of the economy rolling during the pandemic. It is also important for all to be cautious so that taxpayers do not face any problem, said the VAT intelligence office.
The field office of the NBR said it cancelled the previous directive given the coronavirus pandemic so that businesses could avail the government-declared stimulus package easily and trade and economic activities can return to normalcy.
Rahman refused to comment.
However, Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said revenue flow would have increased significantly had the initiative been successful because firms would have to show the actual picture to get loans.
He, however, said it is not the responsibility of banks to do what the VAT department needs to do.
"They (NBR) have to do their own jobs. They need to do their own homework. If needed, they can ask banks for information on selected cases, not on a wholesale basis. And this can be done based on permission from the Bangladesh Bank."
"A strong lobby might have worked against the move. They might have exerted pressure on the NBR to stop the move even before a clarification comes from the central bank."
The NBR and the central bank should take an initiative to make loans sanctionable based on declarations made by taxpayers in income tax and VAT returns, the former economist of the International Monetary Fund said.
Other countries, including the US, provide loans based on income and sales reported in tax returns, he said, adding that the NBR should write to the BB in this regard.
Syed Mahbubur Rahman, managing director & CEO of Mutual Trust Bank Ltd welcomed the NBR's decision.
VAT is the biggest source of revenue collection and the officials under the department were assigned to collect Tk 108,600 crore out of the total revised target of Tk 300,500 crore for fiscal 2019-20, which ended yesterday.
Collection of indirect tax fell in the July-May period due to a slump in business activities following the coronavirus outbreak. VAT collection dropped 1.26 per cent year-on-year to Tk 75,900 crore during the period.
For fiscal 2020-21, the government has given VAT officials the target to collect Tk 125,160 crore, up 14 per cent from the previous year.