VAT automation gets off the ground

Vietnam-based FPT Information Systems yesterday won the contract to automate the country's VAT system in preparation for the new law that will come into effect in July next year.

The move, which comes after much delay due to problems with the initial bidding process, will facilitate the release of the last two instalments of the $1 billion loan from the International Monetary Fund.

The instalments have been held up partly due to a vendor not being selected then to implement the VAT automation system.

The government will pay the company Tk 228 crore over five years to install, operate and maintain an Integrated VAT Administration System (IVAS).

The IVAS, which is expected to be fully up and running by December next year, will integrate the 340 VAT offices dotted across the country as well as Bangladesh Bank, the Office of the Comptroller and Auditor General and the income tax department of the tax administrator.

FPT Information Systems won the contract over Canadian Sogema Group by quoting a lower amount.

Passed in 2012, the new VAT law imposes a 15 percent VAT at every stage in which value is added, a decision which was not welcome by the business community.

For implementing the new law, the government has taken a Tk 551 crore project titled “VAT and Supplementary Duty Act 2012 Implementation (VAT Online)”, of which Tk 450 crore will be provided by the World Bank.

The VAT Online project will increase the number of active registered VAT-payers to 85,000 within the next five years compared to the existing 35,000, according to World Bank estimates.

The project will include regular disclosure of performance information to the public so they can monitor progress with the project, including the tax collection, according to the WB.   

The use of an automated system will help the VAT wing be more effective in resolving disputes and finding irregularities.

The project is aiming to raise the ratio of VAT to gross domestic product by at least 1 percentage point of GDP by 2019, the WB said.

In fiscal 2012-13, the VAT to GDP ratio stood at 3.7 percent.

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 National Board of Revenue has decided that each of the three tax types warrants separate application software, rather than an integrated revenue management system for all taxes.

The VAT and income tax application would share a common database platform “oracle”, according to project documents.

The platform, along with the new unique BIN (business identification number) that will serve 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 project will introduce new business processes and a centralised processing centre for efficiency gains and to improve the approach to tax audits and refunds.