Online VAT refunds pose new hurdles for businesses, with Tk1,500cr in claims stuck

Bangladesh's recent shift from a manual to an online value-added tax refund system, promoted by the National Board of Revenue as a move towards transparency and efficiency, has instead created new complications for businesses, leaving around Tk1,500 crore in refunds effectively stuck.

When the NBR introduced the online VAT refund module, it said businesses would be able to apply digitally and receive reimbursements directly into their bank accounts with ease, drawing praise for the initiative from various quarters.

However, business owners now say the reality is different, with the new system proving more restrictive in many cases than the old manual process.

Under the previous system, companies could apply for full refunds of excess VAT and related duties, although the process often took time. But under the new online system, businesses can apply only for partial refunds, while additional conditions such as audits have complicated the process further. 

Infograph: TBS

As a result, refunds worth tens or even hundreds of crores of taka are effectively stuck, according to business representatives. They also complain that while newly created refunds can be claimed through the system, older outstanding amounts are not being reimbursed.

Officials at field-level NBR offices have acknowledged the problem, saying there is no immediate solution. This has increased concern among businesses and weakened their confidence in the online system, they added.

Concerns have also been raised about the automation of customs bond management. 

Although businesses are required to comply with the automated process, the NBR has not yet developed adequate service capacity, traders say. This has led to delays in obtaining utility permissions and, in some cases, increased harassment.

On 7 January, the NBR announced that VAT refunds would be credited directly to companies' bank accounts once applications were submitted online. It also claimed the new module would ensure faster processing through a fully transparent system.

But businesses say they began to encounter serious problems soon after the system went live.

Partial refunds, blocked claims

Confidence Group, one of the country's leading conglomerates, has around Tk140 crore in VAT refunds recorded – money it says was over-collected by the government and already claimed by the company for reimbursement.

Company officials said under the new system, they can claim only the 2% advance tax deducted at the import stage, but not the 15% VAT or supplementary duty (SD).

Salman Karim, a director of Confidence Group, told The Business Standard, "Under the manual system, after calculation, refunds for VAT, advance tax or SD could be claimed and eventually paid, though it took time."

"In the new online VAT refund module, there is no option to claim anything other than the 2% advance tax. This makes recovery of the much larger amounts of VAT and SD uncertain," he said.

He added that even when the government holds money owed to a company, it cannot be adjusted against the company's VAT liabilities under the new system.

"If I am entitled to Tk40 as a refund, the new system is giving me only Tk2," he said, describing the change as an increased financial burden rather than a simplification.

This situation is not limited to the Confidence Group, as a similar picture is seen in the case of other companies as well.

A senior official from Meghna Group, another major conglomerate, told TBS on condition of anonymity that the group previously claimed Tk74 crore in VAT and advance tax refunds under the manual system.

"However, after the online system was introduced, we were told to abandon previous claims and apply afresh under the new system," the official said. "But now, apart from advance tax, no VAT refund can be claimed."

"Instead of simplifying the process, it has been made more difficult," he added, noting that audits, which were not mandatory under existing VAT law, are now required, along with other strict conditions that make refunds nearly impossible.

Large sums outstanding

According to NBR sources, businesses are owed around Tk1,500 crore in VAT refunds nationwide. Data from the Dhaka South VAT Commissionerate alone shows refund claims of about Tk211 crore from at least 25 companies.

These companies will now have to submit new applications online, but will be able to claim only a small portion of their dues, according to officials.

Commissioners at two Dhaka VAT commissionerates confirmed that only partial VAT claims are being allowed under the new system. One commissioner, speaking anonymously, said, "The NBR can better explain why this has been done."

Asked about the issue at a press conference on 25 November, NBR Chairman Abdur Rahman Khan said the process would gradually become easier.

However, officials within the relevant departments said there is no plan to refund VAT and supplementary duty under the new system.

Syed Mushfequr Rahman, a member (VAT audit) at NBR, told The Business Standard, "Under the new system, advance tax can be claimed. If, after calculation, someone is entitled to VAT, they can apply for a rebate as per the law."

A senior NBR official, speaking on condition of anonymity, said commissionerates in the past approved refunds without proper scrutiny, leading to suspected irregularities. "This system has been introduced to prevent such irregularities," he said, adding that VAT refunds would no longer be given, though rebates could be claimed where applicable.

'Cutting off the head for a headache'

Business leaders say that until 2023, refunds could be claimed for VAT, supplementary duty and advance tax collected, and were eventually paid, sometimes after two or three years. In 2023, claims for supplementary duty were stopped. With the launch of the online system, they say, VAT refunds have also effectively been blocked.

A senior executive at a large local business said, "When the government is owed money, it collects it immediately. But when it owes us, it creates excuses. The new system is a clear example of that."

Businesses also say officials have been instructed to verify refund applications against a 24-point checklist, making refunds virtually impossible for many firms.

Tax experts have also criticised the NBR's approach. 

A leading chartered accountant and tax expert, speaking on condition of anonymity, told TBS, "The NBR is legally obliged to provide VAT refunds.

"If some companies obtained refunds through irregular means in the past, the NBR should strengthen its capacity to detect and prevent such abuse. Cutting off refunds altogether is not a solution. You do not cure a headache by cutting off the head," the expert said.