Accelerate use of EFDs, ramp up monitoring

"There is inertia among many traders toward automation or recording transactions in machines," said Muhammad Abul Mazid, a former chairman of the NBR

The National Board of Revenue should accelerate the use of electronic fiscal devices (EFDs) and ramp up monitoring to eliminate non-compliance with a view to raising more value-added taxes using technologies, said former top taxmen and economists.

Their comments came as the use of much-hyped EFDs failed to meet expectations, thus depriving the government of the indirect tax shops collect from the consumers and raising the tax-to-GDP ratio.

"There is inertia among many traders toward automation or recording transactions in machines," said Muhammad Abul Mazid, a former chairman of the NBR.

"There is fear among traders that if machines are used, the devices will store all transaction data. In a country, where the use of two registers is quite common, who will be interested in using the devices?" he questioned.

Mazid was at the helm of the NBR when the tax administration introduced the electronic cash register (ECR), the predecessor of the EFDs, in 2007-08.

"There is also apprehension among the dishonest traders that all of their transactions will be transparent if they use the devices. Instead of doing that, many of them are trying to shift the blame onto customers," he said.

According to Nasiruddin Ahmed, another former chairman of the NBR, the main reason behind the failure is the absence of constant monitoring at retail levels.

"This is the job of the NBR. It appears that there is a gap when it comes to commitment."

Zahid Hussain, a former lead economist of the World Bank's Dhaka office, thinks businesses will not interested in collecting and depositing VAT properly if an effective refund or credit system is not put in place. 

"Input tax credit system does not function properly."

An input tax credit is deducting or adjusting the VAT paid during the purchase by a customer from the VAT realised from the buyer during the supply of the inputs.

Hussain also blamed the loopholes and distortion in the VAT policy.  "Businesses see VAT as a burden."

The second issue is governance and the lack of monitoring, the economist alleged.

"Corruption has a role. Businesses are getting benefits from not using EFDs. Dishonest officials are also getting a part of the pie."

Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, thinks officials at the field level of the NBR do not want the initiative to be successful. 

"Monitoring and enforcement must be separated. The official who will monitor the system must not be given the task of enforcing it."

Mansur, a former economist at the International Monetary Fund, says VAT evasion tendency is also seen in developed countries.

"In our country, the collection of VAT from retailers will be small since stores are small in sizes. Priority should be given to the proper collection of VAT from the wholesale and manufacturing levels."

"For this, surveillance will have to be beefed up. At the same time, the automation process has to be strengthened."

He says the NBR's initiative to engage the private sector in the operations of EFDs is okay, but the NBR must have vigilance on both traders and private service providers.