VAT automation stuck in foreign grip as local expertise lags

The country's Value Added Tax (VAT) automation has remained monopolised by Vietnamese firm FPT, as the online platform was developed on software for which there is no local expertise.
The contract with FPT, signed in 2015 at a value of US$33.6 million, is the largest turnkey IT contract in Bangladesh's history. The Integrated VAT Administration System (IVAS) project was supposed to be completed within 12 months, followed by a five-year maintenance service.
Although the contract was scheduled to end in 2021, the National Board of Revenue (NBR) was compelled to extend the tenure several times over the last five years.
VAT officials said NBR floated tenders twice to appoint a local firm to run the system, but none of the bidders met the criteria.
With the latest extension, the FPT contract is set to expire on December 31, 2025. However, VAT officials remain divided over the Enterprise Resource Planning (ERP) software SAP, under which the system has been developed. SAP is a sophisticated platform requiring intensive expertise to operate.
Officials in NBR's IT wing alleged that the faulty contract was signed during the previous Awami League government, despite knowing that neither NBR nor local IT firms had the capacity to manage the VAT system. On the other hand, former officials of the VAT Online Project (VOP) argued that licensed software like SAP was necessary to protect against cyber attacks and malware.
IT experts have also observed that the contract was designed in a way that ensured local firms or NBR could not take over. The VAT automation system was developed under the VOP project, worth Tk 6.90 billion, funded by the World Bank.
Habibullah N Karim, vice-president of the Metropolitan Chamber of Commerce and Industry (MCCI) and CEO of Technohaven, said ERP software cannot be operated or maintained without the required expertise, which Bangladesh has not developed yet.
"The VAT automation could have been developed using software compatible with local IT skills," Mr Karim said. "It is a challenging situation for NBR, as it is struggling to come out of its dependency on the Vietnamese firm."
He added that development partner-funded projects are often designed in favour of foreign contractors, making it difficult for local firms to win bids.
Rakibul Hassan, chief technology officer of Link3 Technologies, noted that although no local experts can currently maintain the system, SAP expertise is gradually developing in Bangladesh.
"Some large companies like Bergertec are already working with SAP," he said. "However, it is usually difficult for another company to take over the Annual Maintenance Contract (AMC) of software developed by a different firm."
He suggested that NBR should have engaged local IT experts during contract negotiations to ensure domestic participation.
A senior IT official at NBR said the decade-old VAT online system now requires a complete overhaul - either through upgrading the existing SAP platform to SAP HANA or by adopting a new digital VAT system.
The official added that the original contract lacked provisions for transferring the system to local IT teams. Such an overhaul must be handled cautiously, as nearly Tk 2.0 trillion in VAT revenue - the single largest source of domestic revenue - could be at risk.
The government must now decide how to phase out FPT's dominance, say officials. One option is to upgrade the system under another international contractor experienced with SAP or SAP HANA.
Another option is to adopt a new platform altogether, one that local companies and NBR's IT team can manage through proper technology transfer. The current system, already a decade old, will become obsolete by 2027, officials warned. "There is no scope to continue the VAT online system on this outdated platform, as it cannot prevent malware or security threats," one NBR official said.
The official also mentioned that a World Bank project is under review to either upgrade the existing system or develop a new platform.
A former VOP official said that efforts had been made to train NBR's IT officials to take over system management, but these failed due to a lack of cooperation from senior NBR officials. Nearly 3,000 officials received training under the project, but it ultimately proved futile.

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