20 years and Tk1,000cr later, NBR runs mostly on paperwork

Highlights: 

• Despite heavy investment in digitisation, most tax functions remain manual
• An NBR report shows most key projects for a paperless system remain unimplemented
• The archaic manual system frustrates taxpayers and costs the exchequer dearly
• But Research shows Bangladesh's revenue could double with fully digitised tax system

Over the past two decades, the government has poured at least Tk1,000 crore into digitising the National Board of Revenue (NBR) in hopes of boosting tax collection and improving taxpayer services. Yet, most tax-related functions remain stuck in the archaic manual system, frustrating taxpayers and costing the exchequer dearly.

Research suggests that Bangladesh's revenue collection could potentially double with full automation of the tax administration. However, despite efforts since 2005, an NBR report shows that only three out of 16 key actions essential for a world-class paperless tax system have made notable progress.

The report, seen by TBS, was prepared by the e-Tax Management Unit of the NBR and sent to the NBR chairman and relevant parties on 20 January. 

According to the report, Digital Transformation of Income Tax Administration, the only significant advancements have been in Electronic Tax Identification Number (e-TIN), Electronic Tax Return (e-Return), and eTax Office. The rest remains stalled.

Take VAT automation, for instance. After nearly a decade of work and an investment of Tk347 crore, only a few tasks have been partially digitised. The much-touted electronic fiscal device system, designed to bring transparency to sales accounting, has largely flopped.

Then there's the National Single Window programme, launched seven years ago to digitise customs management. Despite consuming a significant share of its Tk600 crore budget, it is only now set to begin next month. 

Bond automation, another critical initiative, has cost over Tk100 crore yet remains a non-starter. While some aspects of import and export processing have been digitised, much of it is still done manually.

Even the Authorised Economic Operator system – intended to facilitate swift clearance of imported goods – has seen abysmal adoption. After five years of discussions, just 14 companies out of thousands of importers and exporters have joined the programme.

Almost all income tax automation initiatives, barring two, have failed to take off.

Frustration runs high. At a seminar marking Customs Day on Sunday (26 January), Finance Adviser Dr Salehuddin Ahmed expressed his dismay: "The Bangladesh Single Window process started in 2017, but it took so many years to complete. Just imagine the situation."

Ironically, much of the funding for these automation projects came from international partners like the World Bank and ADB. Yet, despite their support, digitisation remains sluggish, leaving taxpayers and the economy to bear the cost, analysts say.

According to the NBR report, at least eight initiatives have been undertaken with the support of both local and global development partners to digitise the tax system, with a significant amount of expenditure.

The report also highlighted that the NBR has not developed any documented cybersecurity policies. Moreover, integration among the NBR's three departments – income tax, VAT, and customs – has not been attained.

Tax revenue could double with full digitisation

Experts said digitisation is crucial for Bangladesh to mobilise domestic resources and raise the tax-to-GDP ratio from just over 7% to 16% by 2030. 

According to research conducted by the International Monetary Fund, countries should have a tax-to-GDP ratio of at least 12% in order to experience accelerated economic growth.

Experts also said the NBR has failed to achieve full tax digitisation due to a lack of concrete and holistic approach, technical and design flaws, insufficient expertise, and misallocation of funds.

A study by the Centre for Policy Dialogue (CPD) last May also revealed that at the current pace of NBR's operations, revenue collection by 2030 is projected to reach around Tk9.90 lakh crore. However, with proper digitisation, this figure could potentially double.

CPD Distinguished Fellow Professor Mustafizur Rahman, who led the study, told TBS, "The government recently increased VAT and supplementary duty on nearly 100 products and services. If genuine digitisation had been implemented on time, more revenue could have been generated naturally, without imposing additional burdens on people to meet IMF conditions."

Mohammad Zaved Akhter, chairman and managing director of Unilever Bangladesh and president of the Foreign Investors Chamber of Commerce and Industry (FICCI), said, "A digital tax system will simplify business processes, and eliminate opportunities for arbitrary and indiscriminate decisions that tend to increase the cost of doing business in Bangladesh."

Munir Hossain, former vice president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), said, "To maintain competitiveness in the global market after LDC graduation, full automation of the revenue system is a must."

NBR's lag in tax digitisation

A review of the NBR report reveals that tax administration modernisation has three distinct phases, and Bangladesh currently finds itself between the first and second phases.

However, the country needs to advance to phase three, where tax agencies design and operate systems integrated into taxpayers' natural ecosystems.

The 13 areas of digitisation where the NBR lags include – electronic source tax, electronic support, and the electronic tax world, which is designed to manage international tax issues, including transfer pricing and cross-border data sharing, as well as electronic revenue accounting.

Other areas include electronic tax agent management, electronic tax litigation management, electronic connection, electronic payment verification, electronic audit of tax cases, electronic tax office, electronic operation of office administration and digital conversion of paper data.

Although systems like electronic tax deduction at source and electronic tax ledger have been introduced, they are reportedly not fully effective in practice.

Tax assessments, in particular, are heavily based on presumptions, often leading to errors, inaccurate estimates, and taxpayer grievances. 

Moreover, processing large volumes of data remains a significant challenge, preventing the tax system from achieving optimal efficiency.

Lack of concrete, holistic digitisation strategy

Since 2005, at least seven income tax automation projects have been launched, but except for two, most failed due to technical flaws, fund misallocation, and lack of strategy. 

Beyond taxes, more than 10 projects have been undertaken to digitise and modernise VAT and customs systems, but progress in these areas has also been minimal.

M Masrur Reaz, chairman of the Policy Exchange Bangladesh, believes that the lack of a concrete and holistic digitisation strategy has hindered the full implementation of digitisation in the tax administration.

CPD Distinguished Fellow Mustafizur Rahman shares a similar view, pointing out deficiencies in technical expertise and instances of irregularities as additional obstacles.

Experts also cited resistance from field-level officials as a factor in slow digitisation as some officials feared it would limit opportunities for "illegal" income.

Should NBR's digital journey be reset?

According to the report, "NBR should plan a phased digital transformation programme to quickly reach 'Tax Administration 2.0' and then progress towards achieving 'Tax Administration 3.0'."

The report also outlines the necessary steps to achieve this transformation. It emphasises focusing on key areas such as the legislative framework, taxation technology, business processes, capacity building and skill development, data management methods and standards, and governance frameworks.

The report suggests, "E-tax management unit, withholding tax unit, and IT wing of NBR need to have the mandate, resources, and regulatory arrangements for hiring skilled professionals."