World Bank to Support Modernization of Value Added Tax (VAT) Administration
May 9, 2014
Automation of VAT administration aims to improve taxpayer services and increase tax revenue
WASHINGTON, May 09, 2014 — The World Bank Board approved today $60 million in interest-free credit to modernize Bangladesh’s value added tax (VAT) administration and to increase tax revenue. The VAT Improvement Program Project will introduce automation, including on-line VAT taxpayer services, and improve transparency in the VAT administration system. The project aims for the ratio of VAT to Gross Domestic Product (GDP) to increase by at least one percentage point of GDP by 2019. The VAT to GDP ratio for 2012-13 is 3.7 percent.
The project will support the government to implement the new VAT law which comes into effect in 2015 and aims to provide better services and reduced administrative costs for taxpayers. The project will include a campaign to raise awareness of the need to register and file for VAT. The project will seek to increase the number of active registered taxpayers to 85,000 within the next five years compared to around 35,000 VAT payers today.
“Improving Bangladesh’s ability to raise tax revenue is critical for faster economic growth and overcoming poverty because the country needs more resources to invest in infrastructure and human development,” said Johannes Zutt, World Bank Country Director for Bangladesh “Compared to other countries in South Asia, Bangladesh’s tax collection remains low. This project will improve taxpayer services, encourage better compliance and increase tax revenue by automating the VAT system.”
The project will introduce modern business processes and Information Technology systems as well as a more transparent service-oriented tax administration. Registration, return processing, and tax payment will become possible online. This will reduce compliance costs for taxpayers.
The project will also support the VAT administration system to become fully compliant with Bangladesh’s Right to Information (RTI) Act. The introduction of vigorous Management Information System will enable the administration to detect irregularities and initiate remedial measures.
“The project will include regular disclosure of performance information to the public so they can monitor progress with the project including the tax collection. It will also introduce a contact center for taxpayers to get more information on the new VAT and how to file as well as file complaints,” said Tracey Mary Lane, Team Leader, VAT Improvement Program Project, The World Bank “The use of an automated system will help the VAT Wing to be more effective in resolving disputes and finding irregularities.”
The project will also introduce new business processes and a centralized processing center for efficiency gains, as well as improve the approach to tax audit, and refunds. The improved ease of tax filing and paying is expected to encourage more entities to be VAT compliant.
The credits from the International Development Association (IDA) – the arm of the World Bank Group that helps the world’s poorest countries – have 40 years maturity period with a 10-year grace period, and carry a service charge of 0.75 percent.
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