NBR Modern is at Ion Plan Final Draft

8/6/2019 NBR Modern is at Ion Plan Final Draft

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Outline of Modernization Plan(2011-2016)

National Board of Revenue(NBR)


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Table of Contents

Executive Summary 1

1. NBR Modernization Plan 5

2. Progress made by NBR in implementingthe Plan

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3. Indicative timeline 25


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Executive Summary

The National Board of Revenue (NBR), as the central authority of tax policy andadministration in Bangladesh, plays a critical part in the development of the

country. During the current fiscal year (FY 2010-11), NBR is expected to collectTaka 75,600 crore, providing much needed support to the governmentsdevelopment efforts. In recent years, Bangladeshs tax collection has recorded animpressive growth averaging 20% per annum. Despite this good achievement, alot remains to be done. Bangladeshs tax-GDP ratio at 9.3% remains quite lowwhen compared with other similarly placed countries in South Asia. Less than 1%of the population pays income tax and tax evasion is persistent even though asignificant amount of tax revenue is given up in the form of tax incentives.Together, curbing tax evasion and dealing with tax incentives could add 5percentage points to the tax-GDP ratio, potentially adding about 40,000 crore tothe revenue collection. Most of NBRs processes are manual and there is little in

the nature of taxpayer service and taxpayer education. The NBR also facesproblems in its functioning due to its current administrative structure. Despitebeing under the same board, the different wings of the NBR (Income Tax, Value

Added Tax (VAT) and Customs) operate almost independently providing littlesupport to each other in combating tax evasion and providing a unified front totaxpayers. Moreover, the NBR faces the problems of acute shortage of trainedmanpower as well as physical infrastructure. These weaknesses of the NBR havenot gone well with the business community and individual taxpayers.

In response to these challenges, the NBR has embarked on far reaching reforms

both on tax policy and tax administration. In addition, as part of thegovernments Digital Bangladesh agenda, the NBR has undertaken severalinitiatives on automation of its tax processes to improve its efficiency and providebetter taxpayer service. The NBR is also being supported by several bilateraldonors and the multilateral organizations on reforms on tax policy as well asadministration. While, all these efforts have supported NBRs reform efforts, thereform agenda appears to lack proper sequencing, prioritization andcomprehensiveness and at times leading to duplication of efforts.

In March 2011, the NBR took the decision to chart out a comprehensivemodernization plan, encompassing all components of NBR reform efforts under

one Plan that could be implemented with a view to achieving the intended goalsover the next five years. Two retreats were organized, the first in March and thesecond in May, 2011, to bring together the senior NBR officials from the differentwings towards a common purpose of motivating them about reforms. The goal ofthese retreats was to update the NBR rank and file on the current reform effortsas well as to chart in an inclusive manner, the goals, the direction as well asfuture direction. Through these retreats, the NBR attempted to bring togetherthe action plans of the different wings of NBR under one common plan.


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This modernization plan outlined in this strategy paper is essentially based on thedeliberations that took place during the two retreats on the background studiespresented by different task forces on the key issues.

The document is organized as follows; Part-I deals with the tax policy initiatives;Part-II deals with reform of the business processes; Part-III includes the digital

NBR agenda; Part-V deals with the architecture of the NBR, how the differentparts work with each other and the place of the NBR within the executive and itsrelation with the government Part-VI looks at improvements to taxpayers service; Part-VII focuses at efforts to improve tax compliance through audits anda quick appeals process and, Part-VIII looks at human resources (HR) andinstitutional development.

This document is a summary that outlines the goals under the different parts andthe broad timelines for implementation. A more detailed document that includesthe mechanism to implement this plan, a detailed timeline as well as resourcerequirement is expected to be prepared by September, 2011 and put before the

government for approval. This final document would then guide NBR reformagenda over the next five years, e.g. the 6th five year plan period.

Overarching goals

NBR expects that the modernization plan, when fully implemented, would enableit to:-

Reach a tax-GDP ratio of 13% by 2016; Provide exemplary customer service to all taxpayers through a web

enabled tax administration from e-registration, e-filing of tax returns to e-payments/refunds by 2016; and Reduce the tax pendency in the courts by 80% by 2016.


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1. NBR Modernization Plan 2011-2016The National Board of Revenue (NBR) is the apex national tax policy and taxcollection and tax systems administration agency of the Government of thePeoples Republic of Bangladesh (GOB). The NBR is responsible for end to end

oversight and superintendence over both direct taxes as well as indirect taxes.These include Income Tax, VAT and Customs. The NBR in turn reports to theInternal Resources Division (IRD) of the Ministry of Finance, Government of thePeoples Republic of Bangladesh. The Secretary to GOB in the IRD also serves asthe Chairman of the NBR. Other Members of the Board include professional taxcadre officers from the three tax wings under NBR control.

The NBR has undertaken an aggressive and comprehensive organizationalrenewal program that seeks to put in place an efficient, effective, fair andresponsive tax regime which is benchmarked against international best practice.The envisaged reform program covers all the three taxes i.e. Income Tax, VAT

and Customs. The reform will review and modernize both, (i) the tax policy (taxlaws and statutory rules) and (ii) tax administration (business process,organizational design, HR policies, taxpayer services etc.).

Tax performance in Bangladesh has been registering a steady incrementalannual improvement over the years with an average 20% growth over the lastfour years. However the gap between tax policy expectation and taxperformance is significant. This gap is going to become far wider in future as theGOB expects the three taxes to deliver revenue outturns that would be morethan 200% higher than the current tax performance over the next five years.

The macroeconomic framework underpinning the budget envisages theBangladesh economy to grow by 7% in FY 2011-12. This outcome is predicatedupon a significantly enhanced revenue outturn by allowing the government tofinance a much larger Annual Development Program. However, the NBR facesseveral challenges in fulfilling this goal.

The tax base in Bangladesh is very narrow with fewer than one million incometax filers. Non-reporting and under-reporting of taxes afflict all the three taxes.The present tax information gap between what the taxpayer knows and what thethree tax departments know about their taxpayers is very wide. In effect, the

taxes that get paid are what the taxpayer chooses to pay and not what he/she isobliged to pay under law.

The NBR is woefully short on administrative resources in terms of manpower,finance as well as physical infrastructure. Its tax management procedures andbusiness rules are desperately in need of review and improvement and itsprocesses are cumbersome, being largely manual and paper intensive. There areobvious leakages of tax revenue from even tax filers on account of inadequateaccounting procedures.


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The present tax administration structure, methods and business processes weredesigned for a manual paper based work environment and are inadequate.These do not equip the NBR to deliver on its ambitious service and complianceimprovement goals, which in turn are critical for the NBR to fulfill its revenueoutcome / tax performance vision. Hence the NBR has chosen to embrace ICT as

a key driver in its comprehensive tax administration reform effort. This part ofthe reform is the program, Digital NBR which in turn is a subset of the nationalprogram, Digital Bangladesh.

The NBR does have pockets of computerization in some work areas. However,this is largely on standalone PCs and does not produce strategic value for theNBR. In fact, the disaggregated computer programs run side by side with thelegacy manual processes have not replaced any significant part of the legacy taxmanagement work. There is no integrated information system and differentfunctions even within the same building do not communicate with each other.

The present weaknesses in tax laws and tax administration severely limit thecapacity of the NBR and its field formations. Thus the NBR cannot expect todeliver the desired growth in revenue outcomes without first fixing the tax lawsthrough a comprehensive policy reform and supporting such policy reforms withconcurrent tax administration reforms.

The NBR has accordingly put in place a major reform agenda that seeks to pushacross the broad reforms in the three national tax systems through severalconcurrent short-term and long-term reform tracks. The purpose of thisdocument is to link these different parallel/sequential tracks or proposed tracks

into one comprehensive master plan that sets out a critical path with milestonedates for different tracks to converge on the critical path. The short-termobjective is to ensure early wins along the critical path while pulling together thedifferent components of the policy/administration reform for the full blownreformed tax systems in the context of the overarching revenue improvementand other goals under the Modernization Plan.

The Modernization Plan of the NBR is the result of a series of engagements thatthe NBR has had with its rank and file and key stakeholders to address theproblems outlined above. It covers a period of five years and has well definedgoals and sub-goals under nine strategic areas.

1. Tax Policy ReformsThis covers a new Income Tax Act, a new VAT Act and Customs Tariffrationalization and modernization of the Customs Act

2. Integrated Revenue Management Program Business ProcessReformThis component aims to streamline the business processes across thedifferent taxes for greater efficiency and better tax compliance. This


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component is closely dependent on the automation process as well as thereform that re-organizes the NBR by function and size.

3. Integrated Revenue Management Program Automation of theTax ProcessesThis component includes the automation of the different wings of the

NBR. A key part of this is the allotment of Taxpayer Identification Number(TIN) and Business Identification Number (BIN) for income tax payers andVAT payers respectively. The other major components are the setting upof an NBR Data Center, Centralized Processing for Income Tax and VATReturns, Tax Information Network and installing a Integrated Tax

Administration Software that would help tax officials perform theirfunctions in a computerized environment.

4. Redefining the Status and Regulatory Power of the NBRThis work stream addresses the overarching administrative structure ofthe NBR. This includes strengthening the Headquarters including

autonomy of financial and personnel management, modifying reportinglines for greater efficiency and the place of NBR within the executive andits relation with the government.

5. Restructuring NBR according to Function and SizeThis component looks at means to improve the efficiency of the taxadministration by organizing it to deal with taxpayers by size (The LargeTaxpayer Unit, Medium Taxpayer Unit and Small Taxpayer Unit). Efficiencycould also be derived by merging functions (such as tax collection, andfiling of tax returns) across the different taxes.

6. Strategic Communication and Taxpayer Outreach, Education andAssistanceThis part includes designing a comprehensive communication strategy forthe NBR, devising taxpayer education modules, supporting taxpayersthrough direct face-to-face assistance provided in taxpayer service centersand through call centers, and a Web interface that providescomprehensive support to taxpayers.

7. Enforcement Improvement ProgramThis component focuses at efforts to improve tax compliance through

better audits, better investigation including combating international taxevasion, improving collection of tax arrears and addressing taxpayergrievances through quick disposal of tax appeals including alternativedispute resolution (ADR) mechanism.

8. Human Resources and Institutional Development ProgramThis component looks at the various resources to successfully manage theimplementation of the Modernization Plan. It includes human resources(HR) management such as performance measurement, integrity


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management, developing a research wing within the NBR and upgradingthe training infrastructure including the two tax training institutions.

9. Infrastructure Development ProgramThis component looks at the requirement of the physical infrastructuresuch as building and furniture as well as the IT hardware requirements to

support the automation of the tax processes.

The goals of the Modernization Plan are:

i. A sound tax policy in line with the international best practice whilealso being consistent with the local conditions in Bangladesh as wellas the higher economic and fiscal policy goals and imperatives ofthe GOB.

ii. Significant growth in revenue performance through widening anddeepening of the existing tax base across all the three taxes.

iii. Enriched and enhanced taxpayer experience through an array ofeasily accessible taxpayer services available at multiple remote/customer facing touch points.

iv. Reducing compliance cost for the taxpayer by reducingunnecessary paper works and contacts between tax administrationand taxpayers thereby establishing a regime that makes therelationship between the tax departments and the honest anddiligent taxpayer incident free.

v. Shifting tax compliance management from the traditional subjectiveaudit selection approach to a computer assisted intelligent selectionapproach based on efficient data mining and revenue risk

management tools.vi. Setting up an efficient, integrated national tax accounting networkthat will correctly account for, reconcile and record tax paymentinformation at a transactional level for all the three taxes and makevisible this information in real time basis to taxpayers and to allstakeholders including GOB, NBR, tax officers, Bangladesh Bankand taxpayers.

vii. Reassignment of tax personnel from non priority routine work topriority compliance and tax collection work through separation andconsolidation of non-priority non-taxpayer facing high volume lowknowledge, tasks like return receipt and processing, tax accounts,

taxpayer registration with TIN/BIN, record keeping etc. in a remotecentralized mass processing center.

viii. Creating an administrative and legal framework that ensures thecollection of sovereign taxes in a fair / accurate manner while alsosupporting the competitiveness of Bangladeshi businesses in atransnational global economy.

ix. Strengthening of tax evasion detecting unit like Central IntelligenceCell (CIC) and other intelligence units.


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x. Increased cooperation and coordination with other government andnon-government agencies.

xi. Human resource development through effective training.


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1.1. Tax Policy ReformsUnderpinning any tax modernization plan is a sound tax policy that is efficientequitable and that can be easily administered. The Income Tax Ordinance of1984 has become out of date and complicated over time due to severalamendments through successive Finance Acts. The VAT Act of 1991 is badly in

need of reform to move it from an excise based system towards a true VAT. TheCustoms Tariff is also in need of restructuring and the Customs Act, 1969 needsto be modernized.

1.1.1. Formulation of Income Tax Law

There are several weaknesses in the current Income Tax Ordinance. Theseinclude, the excessive discretion provided to tax authorities on policy issues, theproliferation of tax incentives and concessions, poor compliance arising due toweak enforcement, limited use of information of taxpayers from other taxes aswell as third party information from other agencies, and over dependence on

presumptive taxes as a final tax irrespective of taxpayer size.

The NBR is undertaking a comprehensive review and re-casting of the IncomeTax Ordinance through a new Income Tax Act. The policy framework for theproposed Code seeks to simplify and streamline tax laws, reduce opportunitiesfor disputes and litigation, correct and check transfer of national tax resources tolocations outside the country and move to a full-fledged self-assessment taxregime in line with international best practices. The Code will also rationalizeand streamline work distribution pattern and enable and support centralizedoperations and return processing, electronic filing, gathering of third-party

information and improved compliance management methods. The Code will doaway with desk audit and other manpower hungry procedures and assist in re-allocation of administrative resources for tax compliance and customer service.The new Code is likely to be signed into law within the next one year.

1.1.2 Formulation of VAT ActThe VAT Act of 1991 suffers from several weaknesses that several Finance Actamendments have not been able to rectify and requires a comprehensive andnew law. The main problem is that the existing VAT is primarily built around theold excise system that it replaced. The problems are, excessive use of physical

monitoring of businesses rather than the use of secondary information,treatment of each unit of a multi unit business as a separate business entity, useof deemed value added based on a percentage of sales (truncated VAT), taxliability based on approved prices rather than actual prices, over reliance onpresumptive VAT, etc.

A working draft of the new VAT Act has already been prepared and is underdiscussion with the key stakeholders. The proposed statute seeks to replace theexisting VAT Act and will rationalize the operation of the law as well as facilitate


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country-wide administration of the VAT regime. The proposed statute willfacilitate electronic interface for taxpayers and a national tax accounting platformfor VAT credits and refunds/adjustments of input/output tax. It will alsofacilitate centralized processing of returns and effective flagging and reporting ofexceptions for compliance intervention by field staff. The new VAT Act is alsolikely to be signed into law in the next one year.

1.1.3 Customs Tariffs Restructuring and Rationalization includingmodernization of Customs Act

This program will seek to improve the policy content and framework of theCustoms Act, 1969 in the context of the national vision of Bangladesh as well asthe required operational efficiency of the customs interface in the country. Thereform of the Customs Act would include,

(a)Provision for full implementation of Revised Kyoto Convention (RKC)(b)Introduction of WCO SAFE Framework of Standards (FoS)(c)Review of related SROs(d)Introduction of Authorized Economic Operators (AEO)(e)Tariff rationalization to promote investments and prevent mis-declarations

and eliminate distortions

The modernization program, at the policy level will also factor in the mutation inthe role and mandate of the customs authority from being a pure revenuecollecting agency in the era of the high tariff walls to a multi-role organization inthe current era of borderless movement of goods, services and currency flows.

The modernization of the Customs Act also envisages improved risk managementtechniques, de-congestion and sharp turn-around cycle times at port facilities forcustoms clearance, remote centralized pre-arrival processing of duty paymentand customs clearance with intelligent selection methods for full audit andverification in high risk cases. The proposals will streamline the tariff structureand bring the customs statute and practice in line with international practices.

1.2 Integrated Revenue Management Program: Business ProcessThough Income-tax, VAT and Customs Departments function under the NBR,there is very little data inter-change among the three tax departments and thepossible synergy among the three is entirely absent. An integrated revenuemanagement program seeks to connect the three departments at transactionallevel by linking the taxpayer identification numbers i.e. TIN and BIN in the database. The three departments substantially deal with the same client base orsub-sets of the same base. Hence it makes good business sense to create a datamining facility with modern risk management techniques to enforce better taxcompliance. The methodology for setting up such an integrated system is to first


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centralize the data base and transaction processing of the three departments atone location and then to build an information system that can mine data in thethree data bases and thereafter process the same for exception reports. Theseparate Modernization Plans under the different tax wings should not be seenas independent verticals but limited to tax specific activities that cannot beintegrated across the different taxes. The integrated revenue management

program will enable the desired flow of information and consequent synergyamong the three tax wings of the NBR.

1.2.1 Direct Tax Modernization ProgramThe policy content of the new Direct Tax Code will put in place an efficient andmodern direct tax regime in the country. The design will seek to encourage widevoluntary compliance by the over-whelming majority of taxpayers. This is soughtto be achieved by making it simple for the honest taxpayer to meet his/her taxobligations with minimum inconvenience and with no additional compliance cost.

The design will also seek to increase the cost of non-compliance and make thelikelihood of detection of evasion much higher. This will be achieved by a strongand efficient third party reporting system. This will enable an integrated platformfor capturing, analyzing and disseminating information after identifying logicalinconsistencies between such information and information reported by ataxpayer in his/her tax return. Improved risk management methods will enablefocused deployment of compliance resources in high revenue yielding cases andthis in turn will produce a compelling compliance regime that will widen the taxbase. Tax administration reforms will segregate and consolidate non-customerfacing non-discretionary, high volume mass tax tasks in a centralized processing

centre for efficient processing and closure. The manpower released from this re-design will be re-assigned for compliance, customer service, collection, marketsurveys, intelligence gathering and other customer facing activities. The policyand administrative procedure will seek to widen the taxpayer base to at least twomillion taxpayers from the present one million.

1.2.2VAT Modernization ProgramThe objective is to modernize the VAT administration in order to improvevoluntary compliance and customer convenience in meeting tax obligations underthe law. The Act and procedure as well as business process will also establish an

efficient risk management regime for compliance intervention to ensure wideadherence to the VAT Act, which is capable of significant improvement inrevenue outcomes. The Draft VAT law being discussed envisages a markedlydifferent way of administering the VAT from the current excise-type system.This implies restructuring of the VAT administration to take advantage of theefficiencies provided through automation that enables information exchangeacross the different taxes. The officer-jurisdiction centric administration wouldneed to be changed to more flexible arrangements that would help in meetingthe challenges posed by understatement of sales in evasion prone sectors,


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improper valuation of value added on services as well as loss of tax from internetbased marketing.

1.2.3 Customs Modernization ProgramThe customs modernization program will incorporate the latest ICT technologyfor better compliance in all its land, sea and air ports. This includes evaluatingthe practice of Pre-Shipment Inspection (PSI) and its gradual phase out. PSIadds to cost of doing business in Bangladesh and reduces the competitiveness ofnational businesses as similar costs are not imposed on businesses ofneighboring countries. The replacement of the Pre-shipment Inspection will entailtraining of the customs officials in modern valuation techniques. The CustomsModernization Program has several components;

a. Develop policy units at the NBR with strong and reliable MIS support andstatistical capability;

b. Formulate and update Standard Operating Procedures (SOP) on RiskManagement, Post Clearance Audit, Assessment, Physical Inspection, Non-

Intrusive Inspection, Passengers' baggage handling at ports etc.;

c. Develop audit manual for regular audit of activities and performance byinternal and external agencies. (this is in addition to CGA audit);

d. Strengthen and modernize intelligence and risk management, improvevaluation and audit capacity;

e. Redefine scope of work at customs stations through reduction indiscretionary powers redesigning working process;

f. Strengthen and modernize Customs Training Academy and review HRpolicy for retention of core competences (risk management, PCA,

valuation, classification etc.) at respective offices;

g. Redefine the role of PSI Agencies to procure support services likeconducting investigations against customs fraud at overseas locations,

gather trade data (price, forecasting etc.) for valuation database, quality

certifications etc;

h. Establish connectivity with important partners for providing Single WindowServices; and

i. Recruit new officers and impart training.

1.3 Integrated Revenue Management Program : Digitization ProgramThis program will seek to set up a country-wide integrated ICT platform tosupport the capture of all tax payment information from tax returns, banks, TDSdeductors, third party collection agencies etc. It will also reconcile suchpayments through a two-way or a three-way match with information reported by


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the taxpayer in returns and other filings with the department. It will furtherreconcile this with the version of the payment available with the BangladeshBank. This is to ensure that there is only one version of the truth and theinformation with the taxpayer, the NBR, Bangladesh Bank, Sonali Bank and othercollecting banks about a particular payment is the same and there is no otherversion of this truth as is possible under the present circumstances.

The integrated revenue management system will also receive third party returnsi.e. TDS returns, Annual Information Returns (AIR) etc. and generate MISreports, exception reports etc. It will make clean tax payment informationavailable to the NBR and its three tax wings in a clean, reconciled and confirmedonline format. The system will also establish a revenue performance dash boardaccessible online to all authorized NBR/GOB users to view revenue collectionfigures at the national, zonal or office levels on real time basis. These goalswould be achieved by the following work streams:

1.3.1 Taxpayer Identification Number (TIN)/Business IdentificationNumber (BIN) Project

The Taxpayer Identification Number (TIN) is the foundation for any automationof tax administration. The TIN enables the maintenance of a single taxpayeraccount, enables the exchange of information of taxpayer transactions across thedifferent taxes and high value transactions outside. This ensures that taxpayershave the correct status of their tax liabilities and also ensures that the taxevaders are targeted based on the information collated from multiple agencies.The existing TIN is a manual registration program that suffers from many defectsincluding representation errors, duplicate numbers, incomplete database and

inconvenience of a decentralized registration procedure. The NBR is in theprocess of replacing this number by an efficient nationally unique number or newTIN which will also be linked with the national ID Number. The program willcentralize the database, the transaction processing and allotment process andmaintain high service standards. It will also allot a TIN card to each TINapplicant under a promised service turn-around time. The program will also setup 100 or more TIN Facilitation Counters (TIN FC) in all districts of the countryto enable ease of application and service for applicants. It will also set up an e-filing portal for remote online application and also put in place an express servicefor urgent cases. The program is to be launched under a managed servicemodel in a public private partnership framework.

The Business Identification Number (BIN) program for registering businesses andbranches of businesses for VAT administration is also being revamped and a newseries of VAT is being allotted that would follow up, and be derived from the TIN.This will enable proper management of VAT payers.


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1.3.2 Centralized Processing of Income Tax and VAT Returns programA modern tax administration makes the maximum use of technology to relegateroutine tasks to the background to be outsourced with high quality data thatwould then be made available to tax officers. A big part of such routine tasksinvolves the data entry and arithmetic processing of tax returns. Under this

program, a Central Processing Centre is to be set up for processing all Income-tax and VAT returns, whether e-filed or paper filed at one integrated processingcentre. The entire database and transaction processing will reside at the NBRPrimary Data Centre (PDC) and the economies of scale achieved will enable quickservice turn-around time as well as efficient information management for all thethree taxes. This centre will draw tax payment information from the tax recordkeeping accounting agency or CRA and deliver products and services to tax-payers, to NBR and other key stakeholders. The centralization of high volumelow knowledge, repetitive jobs like receipt and processing of returns andaccounting for taxes etc. will free critical trained manpower of the NBR forattending to the highly neglected tax compliance activities. This change in

management of tax work will support significant improvements in revenuemobilization.

1.3.3 NBR Data CentreThe NBR will set up centralized hardware architecture to cover the wholecountry. This will establish a Primary Data Centre (PDC) at the data centre ofthe Bangladesh Computer Council in Dhaka. The Primary Data Centre will belinked to a Business Continuity Centre (BCC) located in a different building in

Dhaka. This in turn will be connected, along-with the PDC to the DisasterRecovery Centre (DRC) to be located in an NBR building at Rajshahi or withinanother seismic zone. This will serve as a backbone for ICT for the NBR and thisin turn will be linked to client machines across all locations covering the threetaxes under the NBR. The entire database and transaction processing will becarried out at the PDC and will be mirrored and mimicked at the BCC/DRC. Thedata centre and the network are intended to be established through a SystemsIntegrator (SI) Project, possibly under a BOT model.

1.3.4 Tax Information NetworkUnder this project, it is planned to establish an integrated tax accounting systemwhich will be able to verify tax payment claims against actual receipt by thegovernment in banks, consolidate tax accounts and support field formations withaccurate tax payment information online. It will also support the NBR and thegovernment with real time accurate revenue performance information. A CentralRecord Keeping (CRA) Agency is to be established on a managed service modelas a public private partnership to serve all the three tax wings of the NBR withan efficient accounting system. The system will also produce output reports and


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actionable compliance information for correcting delinquency in income tax, VATand customs payments. This intervention is likely to significantly improverevenue performance and compliance environment in the three taxes under NBRcontrol. The program can be implemented and stabilized within a period of 3 6months. The compensation to the CRA for the service can be on per transactionbasis to be paid partly by the NBR and partly by third party return filers. The Tax

Information Network would allow taxpayers to have real time access of their taxaccounts and automatic crediting of refunds to their bank accounts. This wouldconsiderably reduce compliance costs of taxpayers as they would have less needfor costly accountants to ensure that their tax records are in order or, having tovisit the tax office from time-to-time.

1.3.5 Integrated Tax Administration Software (ITAS) ProjectThe Tax Information Network, the Centralized Processing and the Data Centerare key ingredients to generate the required data for tax administration tofunction. There is a need for front-end software that would take this data and

provide for risk based audit modules for audit, managing tax assessments,manage tax appeals and adjust tax liabilities, prepare reports for seniormanagement, manage the HR, etc. The Integrated Tax Administration SoftwareProject will look for customized or off the shelf solutions to address these issues.This is the software that will be on the desktops of the tax officials and seniormanagement for managing a lot of their day-to-day work.

1.4 Redefining the Status and Regulatory Power of NBRThe Modernization Plan intends to re-orient NBR away from the traditionaldepartment of the government to one that is run as a corporate entity with thefocus on management rather than administration. This requires the redefiningthe role of the NBR and its relation with the government. With this end in view,the project would look at the needs to redefine the status, role and regulatorypower of the NBR in light of the necessary modifications of the Presidential Order76 of 1972 or through the enactment of new Act of Parliament based on ongoinginternational best practices. The objective is to give the NBR a corporate entitywith autonomy of financial, organizational and personnel management andperformance matters and also empowering it to make investments from revenuecollection, implement transparent tax policies in an integrated manner. Under the

scheme, the Tax Policy Unit of the NBR is to be separated from tax enforcement.This project would look at strengthening the NBR to support its new and refinedrole.


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1.5 NBR and Field Formations Restructuring (By Function and Size)Program

The existing officer-centric administration while most appropriate in a manualenvironment with little information exchange across offices and taxes isunsuitable in todays more complex environment. Taxpayers undertake

transactions that have implications across the various taxes and bringing thisinformation together provides the assessing officer with valuable information toassess the tax liability without having to resort to time-consuming physicalinspections. Further, moving several routine tasks such as, collection of taxforms, arithmetic checking of tax returns, automatic processing ofrefunds/sending of notice for deficiency, to be outsourced releases theadministrator to do more useful high end tasks. As several of these tasks arecross cutting across the different taxes, these tasks could be merged by functionsaving precious resources by not duplicating these tasks. Taxpayers benefit byhaving to deal with one interface of the NBR rather than its three different taxwings separately.

Presently, NBR tax offices are designed along the traditional jurisdictional systemwhere cross-functional authority is vested in the Circle Officer or correspondingfirst line functionary in VAT or Customs. This design has severe limitations,particularly of scalability. Increases in workload never correspond with increasesin manpower and other administrative resources like financial outlay or physicalinfrastructure. The consequence is growing inefficiency and neglect and collapseof several prescribed tax tasks like accounting, record keeping etc. Moreover,the design encourages one to one relationships between taxpayers and taxofficials and generates a discretionary rent seeking environment. It also crowds

out serious compliance effort as offices tend to get swamped with routine lowknowledge jobs.

It is recognized that there is a strong case for functional distribution of tax workat the line level so that economies of scale can be achieved and more efficientand specialized approach to tax management is possible. It is also not possibleto efficiently and effectively computerize the legacy manual administrative designand procedure that supports cross-functional responsibility for all tax work in agiven territory with only one individual. Hence, the NBR is moving towardsdistribution of work according to function and size in order to achieve a morebalanced re-assignment of administrative resources across functions. For

example, in the front offices of the NBR, audit assessment, collections, customerservice, risk profiling, investigations and intelligence will all be separate functionsthat would encourage specialization and professional excellence. Similarly in theback office or Central Processing Centers and CRA, return receipts, returnprocessing, tax account reconciliation, exceptional handling, refunds, call centersand customer facilitation, problem resolution, record keeping/archiving will all beseparate specialized functions. The integrated information system and ICTplatform will create a seamless environment for inter-function and intra-functionflow of information.


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The LTUs have largely been a success as they ensure a highly trained workforcetackling the cases that generate about 80% of the tax revenue. Among theremaining taxpayers are those who are medium and small/micro taxpayers. Thesmall and micro taxpayers require a very different approach from the mediumtaxpayers as they require a greater emphasis on service and assistance than on

audit. The segmented administration by size ensures a customized approach totaxpayers that enable the tax administration to manage their resourcesaccordingly.

1.6 Strategic Communication and Taxpayer Outreach, Education andAssistance

Bangladesh has a very narrow tax base and a very small percentage of thepopulation bears the burden of taxation. Most of the direct tax revenues comefrom TDS whereas a larger percentage should be coming from corporate tax as

well as from businesses and professions through advance tax (PAYE). Thelogical inference is gross under reporting or non-reporting from various eligiblecategories. The tax performance across the board is inconsistent with the GDPand economic growth in Bangladesh. Obviously, in addition to improvedtaxpayer experience and effective compliance, there is a strong case foreducating eligible taxpayers with their tax filing obligations as well as withinformation on how to go about it. Centralization and automation of taxaccounts and return processing coupled with an efficient TIN database willprovide valuable tools for analyzing taxpayer profile and behavior. Such analysisand information will be used to undertake an aggressive taxpayer education

program. This will assist taxpayers to behave as responsible citizens/residentsand to meet tax obligations arising from taxable income and activities within thesovereign territory of Bangladesh. The taxpayer education program will makeavailable a menu of offerings through remote outlets like websites, internet etc.as well as through customers facing one to one or group interface with the NBRCustomer Service Wing.

1.6.1 Strategic Communication and Taxpayer Outreach and EducationTax reforms are not painless. Changes in tax procedures and new taxes are likely

to be opposed by the public and important stakeholders frustrating reformefforts. Strategic communication is extremely important to obtain taxpayer andkey stakeholder support for tax reforms. The NBR needs to strengthen itsinternal capacity to undertake such communication with stakeholders and whererequired use external firms to convey its message. The process should start witha communication strategy that at first maps out the key stakeholders such as theparliamentarians, the judiciary and the media and then recommends theappropriate communication needs and vehicles.


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Another important aspect of communication is taxpayer education. Taxpayersneed to be informed of the various tax procedures in a manner that they cangrasp easily. Apart from the media, important intermediaries such as businessassociations, accountants and tax lawyers play a crucial role in educatingtaxpayers. The purpose of taxpayer education will also be to develop mutualtrust between tax departments and taxpayers with the assurance that there will

be intra-taxpayer equity and the NBR will work towards ensuring that everyperson pays his/her due share of tax. The NBR will also ensure that therelationship with taxpayers and the department will be incident free for all lawabiding taxpayers. The NBR will, under this program, reinforce its position that itis committed to supporting the competitiveness of Bangladesh businesses at thenational as well as international levels and will ensure that the time taken tomeet tax obligations is the minimum and the same does not impinge uponvaluable productive time of taxpayers and their businesses. This program willalso explore the use of providing relevant information to taxpayers through theircell phones.

1.6.2 Website Development ProjectThe NBR has a reasonably informative and useful website. The NBR is workingtowards building strong back end systems and data management capacitythrough its effort of centralizing accounts, centralizing returns receipt andprocessing, centralizing transaction processing, centralizing taxpayer registrationand rationalizing tax laws. Once these are in place, the quality and experience ofaccessing a range of the NBR taxpayer services through the official website willachieve a much superior level and will in effect make the website an interactiveforum that would allow taxpayers to find links to a range of tax facilitation

offerings.

1.6.3 Taxpayer Service Centre ProjectThis program will work towards providing direct support to taxpayers throughconveniently located facilitation centers. This program will also include thesetting up of call centers that could provide answers to taxpayers questions. These centers will assist taxpayers in preparation of returns, in calculation of taxliabilities, in understanding of tax payment milestone dates etc. The servicecenters will also coordinate taxpayer education programs at the tax offices, at

commerce and industry association forums, at tax advocates/CA forums and atother community organizations. The taxpayer service center project will alsoprovide remote service through mobile phone, internet etc.

1.7 Enforcement Improvement ProgramEnforcement will be entirely revamped and re-organized along modern andefficient lines. The traditional system of subjective selection and intuitive


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enforcement with no measurement criteria for success will be replaced by a riskbased compliance regime that will seek to make a distinction between honestand delinquent taxpayers. It will encourage delinquent taxpayers to join thevoluntary compliance mainstream. The compliance system will be assisted bymodern data mining audit selection tools that will identify and give a risk ratingto different taxpayers and persons for enforcement action. The enforcement

system will also be informed by the accounting CRA databases for identifyingdelinquency in TDS compliance. This will identify eligible non-deductors,deductors who deduct but do not pay, deductors who short deduct, anddeductors who deduct and pay late. The exception reporting system willgenerate case specific compliance action information for the enforcement wing tohelp enforce compliance to the TDS regime. It is expected that efficiency in thisregime will in itself, even under the current laws, produce additional revenue.

Another area of increasing importance is the role of international tax avoidanceand evasion through transfer pricing and the use of offshore financial centers.This program will train the NBR investigators in combating tax avoidance andevasion in these areas and thereby strengthen the CIC.

1.7.1Audit: Skill (Training and Manual) Development Project; capacitybuild-up

Since the Circle Officer handles every tax task in his jurisdiction in relation toevery taxpayer, audit is only one of his/her several responsibilities. Hence, evencompetent and experienced tax officers have neither the time nor theopportunity to develop skills in effective audit work. In fact, the audit work hasbeen largely crowded out on account of increase in workload and lack ofmanpower and other resources. Once routine and repetitive jobs are centralized

in CPC, CRA, Centralized TIN administration etc., the Circle Officer will have thespace and opportunity for quality audit work. An aggressive program for skilldevelopment and training in audit work is planned. Additionally, access totaxpayer specific third party information, TDS information, tax accountsinformation and industry specific performance information will enable the auditwing for moving to information driven audit of cases selected through an identityblind intelligent selection criteria. Skill development will include the latesttechniques in combating international tax evasion, tax avoidance and transferpricing.

1.7.2 Investigation: Training, Skill and Manual Development CapacityBuilding

The function of audit is the right of the tax department to select a certainpercentage of cases from the self-assessment basket for verification andintensive audit. This reinforces voluntary compliance by keeping taxpayersassured that their cases can be picked up for detailed and intensive audit. Thisprocess encourages taxpayers to report correctly and within time. Investigationis at a level higher than regular audit and cases selected for investigation will


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also be based on identification through an efficient risk evaluation system.Investigations can be case specific, group specific or industry specific. Theinvestigation wing will be informed by an effective evaluation and analysis of firstparty, second party and third party information in diverse data bases of the NBR.The investigation wing will also depend on field based enquiries and surprisechecks and its operations will be evaluated and improved through a system of

outcome measurement and feedback.

1.7.3 Collection: Organization and Structure and DevelopmentThe NBR faces a serious problem with managing its tax arrears. This componentwould look into ways of managing the tax dues owed but not paid. Collection is akey function of any tax regime. Today it is a disaggregated and de-centralizedoperation with no clear information about who owes what or how much to theNBR. In the functional distribution of work, the collection function will need to becompletely re-organized with a centralized database and a

centralized/decentralized enforcement teams. All information related to taxespayable will be captured concurrently from diverse sources and will inform thecollection enforcement teams automatically. The collection teams will run areverse call center to call up delinquent taxpayers for payment of tax throughperiodic calls and reach them through reminder letters. All residual amounts notpaid in spite of three calls and two letters will go to the front end enforcementteams for enforcement action to collect the tax through attachment sale etc. Itis the experience that such an approach results in at least 70% of admitted taxdues being collected by just the remote actions and field enforcement is requiredonly in 30% of the cases.

1.7.4 Litigation: Structure, Management Capacity Building, ADRDispute resolution is a key issue in taxation. Currently, the dispute resolutionmechanism within the NBR is inadequate and most of the disputes go up toforums outside the control of the NBR like Courts etc. The objective of thereform is to rationalize taxes at both policy and implementation levels and todiscourage disputes as far as possible. In the event of disputes, the objectivewould be to settle disputes within the department wherever practical through avariety of tools including the ADR system. Improvement in voluntary compliance

experience, taxpayer education, and an efficient information/risk-basedcompliance regime will itself reduce the volume of disputes.

1.8 HR and Institutional Development Program A shift to a back office/front office format of tax management as well as adistribution of work based on function and size will call for a major overhaul inthe HR approach to deployment and training of manpower. Since functional


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distribution will encourage specialization amongst tax officials, the transfer anddeployment policies will have to address supporting specialization and skilldevelopment in specific functions based on aptitude, flair, skill sets and ability.The HR policies will also have to address issues of intensive HR development andmotivation as well as training. Since it is intended that at the senior supervisorylevels, NBR officials will have cross-functional as well as functional

responsibilities, it is proposed to expose officers of the NBR to different functionsin the first few years of service and then to put them into function specificspecialization before they are promoted to senior supervisory level. Acomprehensive HR policy is to be designed to create congruence betweenaspirations and skill sets of individual officers and NBR organization goals.

1.8.1 Performance Appraisal, Integrity Management DevelopmentProject

With the implementation of the organizational renewal and modernization plan,

performance appraisal has to be strongly re-visited with emphasis shifting onestablished measurement standards for tasks performed by the NBR officers andstaff. Presently, the appraisal is largely dependent upon subjective evaluation.Integrity needs to be reinforced and improved in any tax system and it isproposed to put in place an effective ethics management policy that encouragesadherence to expected ethics standards and values across the NBR and alsoadoption of incentives/disincentives schemes based on quantifiable performanceappraisal system. Since the NBR delivers an important publicly managed servicethat leaves a large imprint on the public face of the government as a whole,improving NBR services and efficiency to a much higher standard that reinforce

and strengthen the trust of citizens in public services offered by the GOB isintended.

1.8.2 Research Wing Development ProjectTax systems face several challenges in developing countries. These include apoor compliance environment and a wide tax information gap. These in turnresult in under performance of tax systems. While these challenges have notbeen adequately addressed, globalization of the economy and dismantling oftrade and tariff barriers have thrown up further challenges of transnational

jurisdiction shopping and transfer of national tax resources to other countriesand tax havens. In order to address these challenges through an institutionalmechanism, this program would look at developing a research wing which willcarry out in-depth research. These will include international tax jurisprudence, in-house data analysis, market survey and research both within and throughoutsourcing. The effort is to support the three tax wings of the NBR to intervenewith policy options as well as administrative re-adjustment for dealing withexisting and emerging challenges. This support will help reduce the tax gapwhich is the difference between taxes legally owed to the State and tax actually


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paid and collected. With strong and powerful back end systems being developedby the NBR for information and data management, the research wing will haveenough width and depth for undertaking research and empirical studies to servetax policy and administration.

1.8.3 Tax Academy ProgramThe expanding training needs of the NBR require strong Tax Academies thatwould be able to provide year round training of international quality to taxofficials of all tax systems. The current training infrastructure is sorely in need ofimprovement. The curriculum of the Tax Academies and their staffing andtechnology requirements has to be assessed and then upgraded. There is alsoneed to tie up with international tax training institutions from around the worldwith the curriculum of the tax academies so as to keep their knowledge on taxmatters up to date.

1.9 Infrastructure Development ProgramThis project will look at the physical infrastructure requirements of the NBRoffices throughout the country including buildings, support equipment such asbackup generators, furniture, computer hardware, etc.

1.9.1 IT Infrastructure ProjectSince the IT platform will be an integrated data center with distributed clientsystems on the desktops of NBR staff as well as with several service providers(manning services like CPC, TIN, CRA, Customs, VAT etc.) inter-operatibility

between different IT players (like SI, network, information systems, database,web server, application server, COTS providers, middleware providers and hostof others) will be a key issue. These will have to be managed by a strong teamat the NBR in order to ensure uninterrupted performance, functionality anduptime. Additionally, contract management for ICT and the management oflicenses would become major administrative responsibilities for the NBR and itwill require a full-fledged Directorate of Systems to manage these issues.

1.9.2 Estates and Building Management Project As a modern tax system, the NBR is committed to giving taxpayers the same

experience in every office and outlet. This requires that the NBR has high qualityphysical infrastructure to facilitate customers as well as to keep the morale of thetax officials high. Hence a full-fledged Facility Management Group (FMG) isrequired to be set up within the NBR with wide responsibility for upgradation ofpresent buildings and infrastructure and for development of new infrastructure inline with the re-design of the organization in the context of movement towardsfunctional distribution as well as ICT enablement. The establishment ofuniformity in interiors, furniture design, signage etc. will build brand equity forthe NBR and make NBR buildings and facilities easily recognizable.


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2. Progress made by NBR in implementing the Modernization PlanAs mentioned earlier, this document has been put together from initiatives thathave started within the NBR. The NBR has already made progress towardsseveral parts of the Modernization Plan especially on the much needed tax policy

reform.

A draft Income Tax Act and a Draft VAT act have been put on the public domainfor discussions. The NBR has met with several stakeholders all over the countryto get feedback on the draft laws. The draft laws are now being modified in lightof this feedback.

On automation, the NBR has started a number of initiatives. The government haswith the assistance of the Bangladesh Investment Climate Facility (BICF)prepared an IT strategy that is now guiding its IT policy. While there are existinginitiatives under the different taxes, in light of a comprehensive IT strategy,

some of these initiatives may need to be modified. The TIN/BIN project is goingon steam with bidders submitting their final bids for implementing the project ina managed service outsourced model while ensuring full strategic control withthe NBR.

On the issue of reducing pendency of tax appeals, the NBR and the Ministry ofLaw, Justice and Parliamentary Affairs have finalized an Alternative DisputeResolution (ADR) project. The draft law has been put out for discussion.Meanwhile, dedicated tax benches have been set up in the High Court Division ofthe Supreme Court.

The NBR has put in place an automated tax calculator which is accessible to alltaxpayers for easy and accurate tax calculation. This facility can be reachedthrough the NBR website and has been very popular. The NBR website alsoprovides for tax forms that could be filled up online, though it needs to beprinted out and sent to the tax office.

On the area of taxpayer service, NBRs tax fairs have been quite successful. Inlight of this NBR intends to have a similar fair during the tax filing season thisyear.

The NBR has also automated the functioning of the Large Taxpayer Unit (LTU)Income Tax and the facility has created an efficient and modern officeenvironment for taxpayers whose cases have been centralized with the LTU.Zone 8 of Income Tax Wing has also been automated. In VAT Wing, LTU (VAT)and Customs, Excise and VAT Commissionerate, Dhaka South have been broughtunder automation. Dhaka Customs House has already started its automationoperation.


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3. Indicative Timeline of the NBR Modernization Plan2011 2012 2013 2014 2015 2016

July

October

January

April

July

October

January

April

July

October

January

April

July

October

January

April

July

October

January

April

July

Short Term Revenue Improvement Program

Tax Policy Reforms

New Income Tax Law

New VAT law

Rationalized Customs Act

Restructuring Customs Tariff

Integrated Revenue Management Program - Business

Process

Customs Modernization Program

VAT Modernization Program

Income Tax Modernization Program

Integrated Revenue Management Program - Automation

TIN/BIN Project

Central Processing of Income Tax and VAT returns

NBR Data Center

Tax Information Network

Integrated Tax Administration Software Project

Reorganizing NBR by Function and Size

Restructuring NBR Administration

NBR Architecture Reform

Strengthening NBR Headquarters

Separating Tax Policy and Tax Administration and IRD

Taxpayer Outreach, Education and Assistance

Taxpayer Outreach Program

Taxpayer Education Module

Taxpayer Service Centers

Website Development Project

Enforcement Improvement Program

Investigation training

Managing Taxpayer Debts and Collection

Reducing Tax Appeals

HR and Institutional Development

Performance Appraisal, Integrity Management Program

Tax Academy Modernization

Estates/Buildings Management Program

Documents

NBR Modern is at Ion Plan Final Draft