World Bank approves $60m for VAT reforms

The World Bank yesterday approved $60 million (about Tk 470 crore) in interest-free credit to help modernise Bangladesh's value added tax (VAT) administration and increase tax revenue.
The credit has been offered under a VAT improvement programme that will increase the number of active registered VAT-payers to 85,000 within the next five years compared to around 35,000 now, the WB said in a statement.
The project will introduce automation, including online VAT taxpayer services, and improve transparency in the VAT administration system.
The project will also support the government in implementing the new VAT law, which comes into effect next year, and aims to provide better services and reduce administrative costs for taxpayers, the statement added.
A finance ministry official said the government has already taken a Tk 551.52 crore project for implementing the new VAT law, a major part of the amount being provided by the WB.
Under the project, the government will purchase specialised software, which the cabinet committee on purchase will approve tomorrow.
The National Board of Revenue, taking the WB consent, has recommended giving work order to a France-based company -- Bull SAS -- for the specialised software that would cost around Tk 86 crore.
The project will have four components for operational modernisation, an integrated VAT management system, institutional strengthening and capacity building, and programme management.
“Improving Bangladesh's ability to raise tax revenue is critical for faster economic growth and overcoming poverty because the country needs more resources to invest in infrastructure and human development,” said Johannes Zutt, WB country director for Bangladesh.
The project will include regular disclosure of performance information to the public so they can monitor progress with the project, including the tax collection, said Tracey Mary Lane, team leader of the VAT Improvement Programme project.    "It will also introduce a contact centre for taxpayers to get more information on the new VAT law and how to file as well as file complaints.”
The use of an automated system will help the VAT wing to be more effective in resolving disputes and finding irregularities, Lane said.
The project aims for the ratio of VAT to gross domestic product to increase by at least 1 percentage point of GDP by 2019, the WB said. The VAT to GDP ratio for fiscal 2012-13 is 3.7 percent.
Through VAT operational modernisation, the project will promote new electronic systems for registration, filing and tax payments, which can reduce both administration and compliance costs.
By introducing an integrated VAT management system, the NBR has decided that each of the three tax types develops separate application software, rather than an integrated revenue management system for all taxes. For this, the tax administrator is going to purchase commercial-off-the-shelf (COTS) software, which is developed, tested and placed on the market by a vendor, instead of developing it in-house.
The VAT and income tax application would share a common database platform “oracle”, according to project documents.
The same platform along with the new unique TIN (taxpayer identification number) as the single identifier for all taxpayers would facilitate integration and harmonisation between wings at the database level.
The system will be based on a centralised platform to which all VAT and tax offices as well as call, data and processing centres will have access.
The WB said the project will also support the VAT administration system to become fully compliant with the Right to Information Act. The introduction of vigorous management information system will enable the administration to detect irregularities and initiate remedial measures.
The project will introduce new business processes and a centralised processing centre for efficiency gains, as well as improve the approach to tax audits, and refunds.