Washington, DC (BBN)- The World Bank Board has approved $60 million in interest-free credit to modernise Bangladesh’s value added tax (VAT) administration and to increase tax revenue.

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, the World Bank said on Friday.

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.

It 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,” Johannes Zutt, World Bank Country Director for Bangladesh, said in a statement.

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.

It 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.

BBN/SSR/AD-10May14-1:17 pm (BST)