VAT IMPROVEMENT PROGRAM PROJECT




                                                                                                                       IMPROVING VAT
                                                                                                                  ADMINISTRATION FOR
                                                                                                                    HIGHER REVENUE
                                                                                                                       MOBILIZATION

                                                    APPROVAL DATE:            END DATE:         TOTAL COMMITMENT:               IMPLEMENTING AGENCY
         BASIC                                      May 9                     June 30           $60 million                     National Board of Revenue (NBR)
         INFORMATION                                2014                      2020

     OVERVIEW
     Low revenue mobilization capacity stands out as one of the main development challenges in Bangladesh. Improving Bangladesh’s
     ability to raise tax revenue, and in particular, strengthening the Value Added Tax (VAT) administration is critical for faster economic
     growth. At its current level, tax revenue collection provides an insufficient base of domestic revenue for Bangladesh to
     finance investment in human capital and infrastructure required to reach middle-income country status by 2021. Over
     the medium term, this places the country at a distinct disadvantage in terms of managing fiscal policy and having
     sufficient resources for infrastructure investments and improved service delivery.

     The VAT Improvement Program (VIP) aims to modernize Bangladesh’s value added tax (VAT) administration
     and to increase tax revenue by introducing automation, including online VAT taxpayer services, and
     improving transparency in the VAT administration system. Such services help encourage better
     compliance.


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CHALLENGE                                                                                                      TOWARDS THE FUTURE
Compared to other countries in South Asia, the ratio of tax collection in Bangladesh remains low at 9          Despite significant implementation challenges, the
percent of GDP in FY 2017. Bangladesh has not been able to sustain improvements in tax collection,             National Board of Revenue (NBR) is committed to the
particularly in VAT to raise tax revenue – a key resource to mobilize investments in economic growth           implement the VAT and Supplementary Duty Act.
and development. In FY 2017, the VAT and supplementary duties collection stood at 4.8 percent of GDP
                                                                                                               To do so, NBR has initiated a Medium-Term Revenue
compared to 4.7 percent and 4.4 percent of GDP in FY 2016 and FY 2015 respectively.
                                                                                                               Strategy which will help in achieving the goals of
                                                                                                               domestic resource mobilization (DRM) reforms.
                                                                                                               Developing a multi-year and holistic strategy and an
                                                                                                               action plan is important for revenue policy, legal and
APPROACH                                                                                                       administrative reform consistent with the countries’
The VAT Improvement Program Project aims to introduce automation, including online VAT taxpayer                development goals, and enhancing the ability of tax
services, and improve transparency in the VAT administration system. The project aims for the ratio of         systems to achieve strong, robust growth and wider
VAT to Gross Domestic Product (GDP) to increase by at least one percentage point of GDP by 2019.               social objectives.
A new VAT and Supplementary Duty Act is expected to come into effect in July 2019. This will provide
better services and reduced administrative costs for taxpayers. The VIP provides the impetus for a shift
from manual to automated and modernized core tax business processing in a transparent manner. The
program is part of the government’s broader tax reform agenda as articulated in the Tax Modernization
Plan 2011-16, which envisaged policy and institutional reform alongside automation of NBR operations
to improve services to taxpayers, reduce administrative costs and improve compliance.
The project includes a campaign to raise awareness of the need to register and file for VAT. It will also
support the VAT administration system in becoming fully compliant with the Right to Information (RTI)
Act.

The VAT Improvement Program follows a Program for Results financing instrument, which disburses
entirely against results – rather than procurements. There are six disbursement linked indicators,
includes process milestones, to keep the VAT implementation plan on track and increase in thenumber
      of VAT payers. It aims to increase online filing and payment, proactive disclosure and improve
          fiduciary environment.




                          EXPECTED RESULTS

                     Active registered taxpayers                    At least 1 percentage point             increase
                     increased by 30,000                            for the ratio of VAT to GDP by 2019

                                                                                                                             THE WORLD BANK IN BANGLADESH               |   65