NBR eyes earning Tk 5,000cr from VDS despite challenges

Al Amin :

The National Board of Revenue (NBR) has introduced a new provision in the current fiscal measures, aiming to collect an additional Tk 5,000 crore by bringing all business and service entities with annual transactions exceeding Tk 10 crore under the VAT Deduction at Source (VDS) system.

Experts and field-level officials, however, have highlighted several challenges in implementing this initiative, including the informal nature of the country’s economy, lack of compliance, and a prevalent tax evasion mentality among businesses.

Previously, only government and autonomous bodies, banks, insurance and other financial institutions, certain NGOs, and companies registered with the Registrar of Joint Stock Companies and Firms were required to deduct VAT at source. The new provision has now expanded this requirement to include more business entities, covering 43 specified services, according to NBR officials.

“We expect the new plan to add more than 5,000 new entities for VAT deduction at source in the current fiscal year, generating an additional Tk 5,000 crore in revenue,” an official told The New Nation on condition of anonymity.

He also mentioned that proper implementation of the initiative will help improve compliance among businesses and other entities with larger turnovers. Experts, however, are skeptical about collecting a substantial amount of revenue, as only a few entities may report turnovers exceeding Tk 10 crore. They also expressed concerns about potential business harassment and increased pressure on businesses from some officials, which could lead to chaos at the field level.

Ahsan H Mansur, Executive Director of the Policy Research Institute (PRI), told The New Nation, “The implementation of the initiative will create an opportunity to ensure compliance among a large number of entities that currently do not show their actual turnover and do not collect VAT at source during payment for listed services.” He added, “However, it has to be implemented not by creating an atmosphere of fear, but by taking VAT payers into confidence.”
According to the NBR, there are presently over five lakh Business Identification Number (BIN) holders in the country. In fiscal year 2022-23, the revenue authorities collected about Tk 1.25 lakh crore in VAT.

Out of this amount, Tk 56,000 crore, or around 45 percent, was collected from VAT deduction at source. More than 80 percent of the collected VAT came from government entities during payments to suppliers for development projects or other work, with the majority of the remaining amount coming from companies, including those in the mobile telecom sector.

Field-level VAT officials see little hope for the success of the new initiative, noting that a significant portion of the country’s economy is informal and many entities do not disclose their actual turnover to avoid paying VAT. “The number of entities showing a turnover of even Tk 3 crore or more annually is very low. In the current situation, it is very challenging to classify these entities as VDS entities and collect VAT accordingly,” an official said, wishing to remain anonymous.