Around 32,000 jewellery shops in the country are operating without value-added tax (VAT) registration, apparently evading the indirect tax paid by their consumers, according to the National Board of Revenue (NBR).

The revenue administration said that only 8,000 gold ornament shops out of a total of 40,000 stores are under the VAT net, and it collected roughly Tk 100 crore in the last fiscal year.

The issue has come into the spotlight as the revenue board moves to install Electronic Fiscal Devices (EFDs), or sales data controllers, to monitor sales at retail and wholesale stores across the country.

According to the NBR, installing the devices would help curb VAT evasion and increase domestic revenue collection, which is one of the lowest in the world in terms of gross domestic product (GDP).

Over the past 15 years, the government has been trying to bring retailers under the VAT net to boost overall tax collection by introducing electronic sales registers. Yet, compliance remains largely absent.

As part of its efforts to improve compliance, the NBR recently met with the Bangladesh Jewellers' Association (Bajus) to bring its 23,000 members under the EFD system. So far, it has managed to install only 1,000 EFDs in jewellery shops.

As such, the revenue board has requested Bajus to write to all jewellery associations and sellers, urging them to obtain VAT registration and install EFDs.

Badal Chandra Roy, general secretary of Bajus, told The Daily Star that they want to bring all such businesses under the tax net to create a level playing field so that everyone complies.

"Since 2021, we have made repeated efforts to bring other jewellery businesses under VAT and tax regulations, urging the revenue board to ensure compliance," Roy said.

He also said that VAT-compliant businesses are struggling to survive because of non-compliant ones, which can offer gold items at lower prices by bypassing VAT.

According to government estimates, the demand for gold in Bangladesh is roughly 20-40 tonnes per year.

The commerce ministry says that almost 80 percent of this demand is met through smuggling.

Read more

NBR plans to install nearly 20,000 EFDs in jewellery shops

Meanwhile, Bajus estimates that gold worth around Tk 73,000 crore is smuggled into the country each year.

At present, jewellery stores need to pay 5 percent VAT on sales, and a huge chunk of VAT could be collected once all shops are brought under the tax net. This would subsequently increase the government's overall revenue collection from domestic sources.

Given this situation, EFDs will be installed in all jewellery shops in the Dhaka and Chattogram divisions in the first phase, said an NBR official.

Md Abdur Rouf, a member of the VAT policy division at the NBR, said, "This is a long-standing issue. It is not just jewellers—many other sectors also remain outside the VAT net."

"Now, we have taken the initiative to go sector by sector. We have started with jewellers. Bajus has said that it would cooperate with the NBR," he told The Daily Star.

Khondaker Golam Moazzem, research director at the Centre for Policy Dialogue (CPD), told The Daily Star that bringing businesses without VAT registration under the tax system is a "straightforward task."

However, the NBR has yet to complete this, which reflects a weakness in the government's revenue collection efforts, he said.

Given the typical transaction volume in Bangladesh, collecting only Tk 100 crore in VAT annually from the jewellery sector seems unrealistic, he said, adding, "The actual figure should have been much higher."

It should also be investigated whether those responsible for collecting VAT from these stores are receiving any benefits from them, he commented.

Moazzem further said that structural issues are preventing proper collection from many establishments, even though there is huge potential for revenue collection in remote areas.

To address this, he said, NBR officials should increase their physical presence in the field.

Besides, prompt measures should be taken to collect revenue from these establishments through digital means, added the CPD research director.

Currently, the number of registered VAT payers in Bangladesh is just over 5 lakh, as a large number of eligible businesses remain outside the VAT net.