The majority of small and medium scale shopping outlets are yet to install the automated sales transaction system despite repeated reminders coming from the National Board of Revenue (NBR) since 2009.
A good number of these shops operating without electronic fiscal devices (EFDs) are evading payment of VAT by taking advantage of the existing manual system.
According to the Bangladesh Shop Owners Association (BSOA), there are 2.2 million small and medium shops across the country. Of these, the NBR has installed EFDs only in around 1,300 shops.
As per NBR data, there are a total of 2,36,000 VAT-registered businesses, including large, medium and small ones, until February 7, 2021.
Earlier, the NBR's VAT Wing had estimated that some 4.0 million businesses in the country are eligible for EFD installation.
Official sources said only 3.0 per cent of the total VAT comes from the domestic traders at retail and wholesale levels.
The NBR targeted to raise the ratio to 10-15 per cent when it started the move to install fiscal devices in 2009.
Initially, the agency started the move by making use of Electronic Cash Registers (ECRs) mandatory.
However, the board backtracked from the move after nine years, as the monitoring of ECR-generated invoices was difficult without integration with its central server.
The NBR made ECRs mandatory in 2009, and later ordered to replace those with EFDs on August 9, 2018. Between the period, some 1,200 businesses purchased ECRs to comply with the order as well as following a massive campaign to popularise the device.
On August 25 last, the NBR started distributing EFDs free-of-cost to the small and medium businesses each having more than Tk 5.0 million annual sales.
Each of the EFD costs around Tk 22,000 including its installation in an outlet.
It has been found that the majority of these businesses are involved in manual transactions, as EFDs have not been made available to them.
As per the VAT and Supplementary Duty Act 2012, use of ECRs is no longer mandatory for the businesses, while the NBR is still on trial-run with EFDs.
The entity has provided some 100 EFDs in Dhaka and Chattogram on pilot basis in the first phase, and 1,200 in the second phase.
A senior member of the NBR said the VAT Wing targeted to provide 10,000 EFDs free-of-cost to the businesses by June 30.
"We are observing performance of the EFDs and feedback of the businesses before launching the device on a large scale."
The NBR is trying to motivate consumers to purchase from the EFD-installed shops by offering cash prizes in lottery.
Unless the businesses and consumers become aware of electronic sale transactions, such a move would not see light, he added.
The NBR officials said the government would import some 0.2 million EFDs for shops and other outlets.
A tender has already been invited for importing 0.1 million EFDs at a cost of Tk 3.17 billion.
Meanwhile, despite having huge potentials, VAT collection is showing a poor growth in the current fiscal year (FY), 2020-21, as evasion is high at local stage of collection, according to experts.
A major slide in VAT collection from domestic sources aggravated the shortfall in revenue collection in the first half of the current FY.
The VAT Wing faced a negative 16.58 per cent growth in December last, as per provisional data of the board.
The experts blamed indecisiveness of the government and its slow pace of digitisation for not being successful in automating the sale transactions of the retail and wholesale shops.
It has been found that some of the businesses are selling products without giving EFD-generated invoices by convincing the consumers to pay less, although the NBR has the responsibility to monitor and inspect proper use of EFDs.
While visiting a number of shops in the city's Bailey Road and Kalabagan areas, this correspondent found the malpractice going on due to lack of strong vigilance, awareness of the consumers and also the involvement of some VAT officials.
The EFDs of those shops are interlinked with the EFD management system (EFDMS) and their transactions are captured on a real-time basis.
Transactions made through the devices are transferred to the system for authorisation codes, and the traders are able to complete the transactions only upon receiving code from the system. The businesses are not able to print receipts without the NBR-approved code.
The shops and service providers that have been brought under the mandatory use of the EFDs or SDCs (sales data controllers) include residential hotels, restaurants, sweetmeat shops, furniture shops, clothing stores, electronic/electrical household item selling stores, super shops, jewellery shops, cinema halls and coaching centres.
All shops and service providers in luxury shopping malls and other big and medium wholesale and retail shops located in all the city corporation areas and district headquarters have also been brought under the system.
Each EFD has to be registered against a Business Identification Number (BIN). In case of using more than one EFD at different counters, the devices have to be registered under the central BIN.
The businesses have to preserve the EFD or EFP database for at least six years.
According to an order of the NBR, the VAT officials can conduct physical inspection on the business premises, any time, to ensure proper use of EFD and submit report to the authority within 24 hours.
If the VAT officials find any non-compliance with regards to the installation of EFD, the VAT authority may impose penalty ranging between Tk 20,000 and Tk 50,000. In case of repetition of such offence, it can lock the offender's BIN.
The NBR picked Chinese firm SZZT to import and install EFDs with the technical support of Synesis IT.
Earlier, in a letter to the Ministry of Finance, the NBR said retail and wholesale trade contributes about Tk 2.0 trillion or 13 per cent to the gross domestic product (GDP).
However, the potentials of (realising due tax from) such trade remain untapped because of various limitations in the tax system and trend of tax evasion.
On the other hand, Md Helal Uddin, president of the Bangladesh Shop Owners Association, alleged that some of the VAT officials are forcing the traders to show sales in EFDs despite their poor business transactions in the Covid-19 pandemic.
In Munshiganj, some 400 micro shop owners were forced to obtain VAT registration although these shops have yearly transactions of below Tk 5.0 million each, he alleged.
"I am not against EFD installation, but the VAT authority should not harass the businesses that are not entitled to using EFDs," he added.