NBR’s struggle to collect VAT from retails continuing for years

Nearly two years down the line, the NBR has been able to install only 4,000 machines at stores mainly in Dhaka and Chattogram amid a lack of interest among revenue officials and high-ups at the NBR

On April 5, the revenue authorities held a draw of the lottery of sales receipts issued by the stores using electronic fiscal devices (EFDs).

It was the 15th draw since the National Board of Revenue (NBR) introduced the lottery system to encourage consumers to ask for receipts of their purchases from salespersons. Until now, it got more than 1,500 winners through draws.

Yet it did not get all of the winners of the lottery that has Tk 100,000 as the first prize and Tk 50,000 as the second prize. Just around 100 people have claimed prizes so far.

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Accelerate use of EFDs, ramp up monitoring

The rest did not claim the awards although, at the time of the introduction of the lottery, officials had expected that the launch of the lottery and prizes would generate interest among customers and they would demand receipts after purchases from stores or dining at restaurants, helping curb the scope of evasion of the indirect tax.

The NBR launched the lottery after it started installing EFDs at 24 types of businesses, including shops, hotels, restaurants, sweet stores, clothing, furniture and electronics outlets and jewellers to ensure a proper collection of the value-added tax (VAT) from the retail level.

The idea was that the use of EFDs by businesses would enable revenue officials to see real sales data as the technologies would be connected with the EFD management systems at the NBR.

This was the second attempt by the revenue administration to boost VAT collection, after its first initiative to popularise the electronic cash register (ECR) in 2007-08 failed to generate enough interest among users.

The efforts died down a couple of years after its introduction because of a lack of enforcement and unholy nexus between revenue officials and traders.

Another problem was that there was no scope to monitor whether traders were showing actual transactions as the ECRs were not connected to any central system of the NBR.

So, the revenue authorities took the initiative to replace ECRs with EFDs in 2017. It floated a tender in December 2018 to buy the machines and systems.

It placed an order to buy 10,000 EFDs initially out of a planned 100,000 from a consortium of China-based SZZT and Synesis IT of Bangladesh.

The purchase price of each EFD was Tk 32,000.

In August 2020, the revenue authorities launched EFDs on an experimental basis in five commissionerates of VAT in Dhaka and Chattogram with a target to install 10,000 EFDs at stores by June 2021.

The plan was the consortium would be given further orders for the rest 90,000 EFDs upon successful installation and operation of the devices.

The level of excitement among the top officials of the finance ministry was such that they were planning to roll out the EFDs across the country to bring most retail outlets under the tax net.

WHAT IS HAPPENING AT FIELD LEVEL

Nearly two years down the line, the NBR has been able to install only 4,000 machines at stores mainly in Dhaka and Chattogram amid a lack of interest among revenue officials and high-ups at the NBR, although insiders say the installation of the devices and their use is bringing an increased amount of revenue from many shops.

Insiders say the drive from the NBR slowed as it began to discuss whether it was right to provide the machines to businesses free of cost.

Traders were also unwilling to accept the device and use them to record sales and it was evident from the disabling of the EFDs at some stores.

In repeat visits to shops and restaurants, The Daily Star correspondents also saw little interest among businesses to issue EFD-generated sales receipts to customers.

Take the case of Shawarma House located at the Bashundhara City Shopping Mall in Dhaka. On April 17, one of the correspondents visited the restaurant where the NBR installed the devices.

After the payment of the bill for snacks, the salesman gave the change and no receipt was given. Inquired, the salesman said no customer had demanded receipts since the beginning of the day.

Later two customers paid bills and the salesman accepted but did not issue any receipts. This was the second visit to the same food court since January 10 this year when the correspondent had a similar experience.

At that time, one of the correspondents also visited other shops at the mall, where EFDs have been installed. None was found issuing the sales receipts from the EFDs.

A number of shops in other parts of Dhaka and in the port city of Chattogram that have installed EFDs follow suit: they carry out transactions without giving inputs to the devices.

The examples speak volumes about the lack of compliance on the part of shops and the vigilance and enforcement on the part of the field offices of the revenue administration.

Shop operators say many customers don't want to pay VAT, so they don't use the EFDs.

Another reason is the installation of the devices at larger stores has put them in a disadvantageous position with the shops that don't use EFDs at all, thus remaining out of the oversight of the NBR.

Sultana Pervin Pia, proprietor of Galaxy, a wholesale and retail fashion house at the Orchard Point shopping mall in the capital, says many customers bargain when they are served a bill with a VAT invoice.

"The shopping mall is closed to the Gausia Market and New Market. They can buy the same product at a lower price from there where they will not have to pay the VAT," she said.

The entrepreneur, however, explains to customers the VAT payment requirement in order to persuade them.

At a restaurant in the Anderkilla area of the port city, a salesperson handed a bill that did not contain VAT-related information. When enquired, the restaurant owners say the issuance of EFD-generated receipts causes losses to both buyers and sellers.

The restaurant does not issue the VAT invoices unless a customer seeks one, the salesperson said.

Accepting bills from customers without using EFD-generated sales receipts is a punishable offence under laws, according to Mohammad Akbar Hossain, commissioner of the Chittagong VAT Commissionerate.

"We have taken action against non-compliant shops after receiving complaints. Apart from carrying out regular campaigns, whenever customers complain, we take necessary steps," he said.

An NBR official says the head office of the tax administration is also aware of the problem that many traders are not issuing sales receipts generated by the EFDs, which will confirm the deposition of the VAT to the exchequer.

"Shopkeepers say there is no sale. Again, when we visit a spot, they issue memos from the devices. When we leave the place, they stop again," he said.

Amid the dismal use of EFDs, which were believed to bring about a revolutionary change in the VAT collection in Bangladesh, NBR Chairman Abu Hena Md Rahmatul Muneem in December last year admitted that the installation and maintenance of the devices had become a problem.

Accordingly, the NBR floated a tender calling bid to outsource the EFD, SDC (Sales Data Controller) and EFD management systems. The bid submission time was extended to February and the NBR received five proposals.

It is yet to appoint any firm to provide the support.

Seeking anonymity, a top official of the NBR says the EFD outsourcing plan is a government decision.

"Many government projects are being implemented under the public-private partnership. There are millions of shops across the country. These are not monitored properly. That is why we will receive the service from private companies."

"But the administrative issue will be completely in our control."

Not all tax officials are convinced.

Another top official of the NBR who was engaged in the EFD installation scheme said the lottery was introduced to encourage customers to demand the receipts.

"What is missing is a robust campaign to raise awareness among customers. There is no need for EFDs if the machines are required monitoring."

Some officials also expressed doubts whether it would be possible for private firms to monitor the use of EFDs properly when taxmen have failed to carry out the same task.