NBR looks to alternatives as its VAT machine fails to boost collection

Highlights:

• EFD launched to collect VAT 25 types of businesses
• Target was to install 60,000 unit annually, 3 lakh in five years
• But, 11,000 units installed instead of the planned 30,000 by June
• 8,000 machines not met NBR specifications
• Private operator says dollar price effected imports
• An expert says many knew the project would fail

The revenue board has been directed to explore alternatives to the Electronic Fiscal Device (EFD) system after its failure to meet expected success within a year of launch.

The system was launched last year after over five years of extensive discussions. The aim was to track transactions and ensure accurate value-added tax collection from 25 types of businesses. 

However, it failed to achieve the desired outcome, and revenue officials are blaming the private company working as the system's operator for the failure.

They also pointed to lack of public awareness, non-cooperation from businesses, and an insufficient number of EFDs installed as other issues that impacted the system's success. 

Abdur Rahman Khan, NBR's newly appointed chairman, at a meeting yesterday told officials that there is a need for effective and integrated automation and asked them to find alternatives to the system. 

A senior NBR official present at the meeting told TBS that Genex Infosys Limited,  the private company entrusted with managing the EFD system, has failed to deliver as expected. 

"They were supposed to install EFDs in 30,000 businesses by June but have only managed to install 11,000. Among those, 8,000 machines did not comply with NBR's import specifications," added the official.

The company will soon be served with a show-cause notice, he added. "However, there are other reasons why this system hasn't met our expectations."

Regarding potential alternatives, he said nothing has been finalised yet. "But after establishing digital integration within NBR's wings and between related business entities, we will decide on the next steps."

Genex Infosys Limited has rejected NBR's allegations.

Abu Jahid Parag, head of corporate and regulatory affairs of Genex, told TBS that, "We are conducting our part in this pilot project with utmost efficiency as well as maintaining all the rules and regulations of NBR." 

Another senior official of the company, speaking on condition of anonymity, said their work suffered due to rising foreign exchange rate. 

Besides, he told TBS, "We had applied for a waiver on the 37% import tax on the devices, but it was not granted, even though similar concessions were given to other companies importing for government work." 

He also mentioned that when they went into the field, they could not locate all the businesses listed by the NBR.

NBR's VAT machine 

Until 2018, VAT collection in some businesses was done through Electronic Cash Registers (ECR). However, in that year, the NBR identified 25 types of businesses and initiated VAT collection from these establishments through EFDs.

This system was designed to connect directly with the NBR's server. When a product is sold, the transaction data is automatically linked to the NBR's server, which also tracks the VAT amount. 

As a result, once the information is inputted, there is no opportunity to evade VAT.

However, the launch of this system was delayed by five years. After nearly a year of pilot testing in a few businesses, the NBR officially announced the full implementation through Genex Infosys in August last year. 

The plan was to install these machines in 60,000 businesses annually, with a target of reaching 3 lakh businesses over the next five years.
Despite nearly a year passing, only 11,000 businesses have adopted the system.

Farid Uddin, a former NBR member, told TBS, many predicted from the beginning that this project would fail. 

Blaming the NBR officials in charge at the time, he said, "Those who wasted this time should be held accountable."

He added that the project cannot be successfully implemented without complete digitisation and automation of the overall management system, especially given the 10 different VAT rates. 

He also pointed out that inconsistent implementation—where some businesses in the same area have EFD machines while others do not—has contributed to the system's failure.

Rejoinder of Genex Infosys, our reply

Genex Infosys PLC on Monday (26 August) clarified its position regarding a report published in the 23 August 2024 issue of The Business Standard titled, "NBR looks to alternatives as its VAT machine fails to boost collection." 

In a clarification signed by Abu Jahid Parag, head of corporate and regulatory affairs of Genex, the company said, "Genex has been consistently working in full compliance with the conditions and requirements set forth in our agreement. We have implemented the EFDMS [Electronic Fiscal Device Management System] pilot project with utmost diligence, adhering to all technical and regulatory standards specified by the NBR."

The company claimed that the information of installing 11000 EFD devices was not correct. "The NBR has access to all required information from the system and it is well recorded that we have installed much higher EFD devices than reported." 

The company has refuted the allegation of installing below-standard EFDMS. "We wish to emphasise that discussions between Genex Infosys and the NBR are ongoing," it said. 

TBS reply 

The report was based on information provided by NBR officials. TBS also incorporated comments of two Genex officials in the story.