Installation of electronic fiscal devices at snail's pace

The National Board of Revenue (NBR) has fallen a drastic short of its target for installing electronic fiscal devices (EFDs) in business establishments, a move that is seen as crucial to increasing tax collection.

The NBR could install the state-of-the-art technology in merely 18,000 businesses in three years starting from 2020 although it had set a target to bring 3.5 lakh business establishments under the system by five years.

The revenue board took various initiatives, including signing agreements with local and foreign entities, to implement the plan but the steps brought little result.

There are also allegations that the traders are reluctant to use EFDs to evade tax. As a result, experts believe, automation in the VAT sector is still far being realised by the NBR.

We are now setting up EFD and SDC machines on a Private-Public Partnership basis. 30,000 EFDs and SDCs will be installed by December this year and 60,000 EFDs and SDCs will be installed per year. Three lakh devices will be installed in the next five years.

NBR Chairman Abu Hena Md Rahmantul Munim

Despite aiming to boost VAT revenue through EFD installation, NBR officials cite various obstacles like selecting incapable firms, the Covid-19 pandemic, and dollar shortages as reasons for hindering the progress. Additionally, they claim the lack of business enthusiasm contributed to the programme's stagnation.

Experts feel it is sad to be stuck for a long time in such an important work like automation to increase revenue.

Farid Uddin, a former member of the NBR, said that compared to the contribution of retail and wholesale business to the GDP, very little VAT is collected. By installing EFDs at a larger scale, it was possible to increase revenue collection by stopping VAT evasion.

At a press conference on Thursday, NBR Chairman Abu Hena Md Rahmantul Munim said increasing the use of EFDs and raising awareness to prevent evasion will be the main focus during VAT Week and VAT Day beginning today.

What is EFD?

The SDC is a solution to prevent tax evasion on cash registers, point of sale systems and other invoicing systems. It stores sales and tax information. An EFD is a device similar to SDC. It is used in place of an electronic cash register. It can store sales information.

An EFD is cheaper than an SDC. Besides, there is no maintenance cost. According to the new Value Added Tax law, EFD installation is mandatory for 25 types of business establishments.

According to the NBR, the device is connected to the central VAT server. A business identification number (BIN) is given to every business against every software and device. The BIN is the same even if multiple EFDs are used by a business establishment. However, the NBR provides a special code for each device.

As a result, when an EFD is activated, NBR officials in different customs excise and VAT commissionerates will be able to come in touch with information regarding that business.

According to data of the Bangladesh Bureau of Statistics, the number of business establishments in the country including retail and wholesale is 40 lakh. NBR believes that EFDs can be installed in at least 60% of these establishments. And if this happens, the NBR officials also think that the revenue will increase by at least Tk50,000 crore annually.

In the last fiscal year 2022-23, the NBR fell Tk16,000 crore short of target to collect Tk1.36 lakh crore in revenue.

Inappropriate firms selected for installation

The government in 2018 took the initiative to install EFDs moving away from electronic cash registers (ECRs). The NBR issued a tender to install 10,000 EFDs that year. Then the tender was awarded to China-based SZZT and Synesis IT Consortium of Bangladesh. The two institutions started working experimentally for two years in early 2020, no significant progress was made.

NBR officials say the firms were not suitable. The responsibility for supplying the machines rested with a Chinese company. Although the company started work after a long delay due to the Covid-19 pandemic, along with the dollar crisis and various other reasons, the installation has not progressed. The NBR chairman has recently said that the installation of EFDs has gained momentum with the signing of an agreement with a local firm.

In the Thursday's press conference, the NBR chairman said that an agreement was signed with local company Genex Infosys in August. "We are now setting up EFD and SDC machines on a Private-Public Partnership basis. 30,000 EFDs and SDCs will be installed by December this year and 60,000 EFDs and SDCs will be installed per year. Three lakh devices will be installed in the next five years."

EDFs not being used to evade tax

A recent visit to several major shopping malls and markets in the capital this correspondent found that EFDs were only available in a few stores. In most cases, businesses were still using manual methods to record sales.

Business owners say that customers often prefer to buy goods without paying VAT. They also complain that they are at a disadvantage compared to businesses that have not installed EFDs.

Rokeya Hasan, owner of the wholesale and retail fashion house Ankara in the Fortune Shopping Mall, said that many customers try to negotiate prices when they are given a VAT invoice.

An NBR official said that the tax administration is aware that many businesses are not issuing EFD receipts.

"Business owners tell us that they have no sales," the official said. "But when we conduct on-site inspections, we see that they are using their machines to generate memos. When we leave, they turn them off again."

The NBR chairman said that a lottery system has been introduced to encourage people to shop with EFDs.

"To participate in the monthly lottery, VAT payers must collect their receipts when they purchase goods or services using EFDs," he said.

The EFD lottery offers 101 prizes, ranging in value from Tk1 lakh to Tk10,000. The lottery draw is held automatically every first week of the month.

Rahmantul Munim said that the purpose of the VAT Day and Week celebrations is to increase public awareness and participation in VAT collection.

"I hope that consumers will be aware and that VAT officials will be revenue-friendly," he said.