A 2022 survey by the VAT Audit, Intelligence, and Investigation Directorate reveals that about 78 percent of retail businesses in shopping malls have not registered for VAT. Meanwhile, the Bangladesh Restaurant Owners Association claims that out of 482,000 restaurants in the country, 70 percent do not pay VAT. These figures reveal that many businesses in different sectors remain outside the VAT system. Instead of bringing these businesses under the VAT net, the government raised VAT rates last Thursday (January 9) on over 100 goods and services.

Amid high inflation and an overall economic crisis, the increased VAT will put additional financial pressure on people. Businesses will also feel the strain. This decision has sparked criticism across the country.

According to the NBR data, there were 544,000 VAT-registered businesses in the country by last December. This was up from 371,000 in the 2021-22 fiscal year and 291,000 in 2020-21. However, business owners point out that instead of focusing on increasing the number of VAT payers, the NBR seems more focused on raising VAT rates.

Dr. Md Abdur Rouf, NBR Member (VAT Implementation and IT), stated, “The number of VAT registrations is now 544,000. Combining online and hard-copy submissions, nearly 400,000 returns are filed monthly.”

Officials from NBR’s VAT department noted that one major flaw in Bangladesh’s VAT system is the practice of fixed VAT, which makes the system inefficient and allows significant tax evasion by larger businesses.

Previously, consumers paid 7.5 percent VAT at sweet shops, which has now been raised to 15 percent. However, there are allegations that shopkeepers often do not issue VAT invoices, even when consumers pay VAT. On the other hand, business owners complain that customers are reluctant to pay VAT.

An NBR official from the income tax department, speaking on condition of anonymity, shared an incident with Bonik Barta, “I was visiting a relative’s home in Mirpur’s Shewrapara. I bought sweets from a local shop there. When I asked about a VAT invoice during payment, the seller said they don’t provide one. On another day, I had a similar experience at a branch of the same brand in Kazipara.”

The VAT law stipulates a penalty of BDT 10,000 for businesses that fail to obtain an electronic business identification number (EBIN). Additionally, businesses can be fined the same amount for not properly displaying their VAT registration certificate. However, there is little enthusiasm within the NBR for enforcing these provisions. Officials from the VAT department believe that stricter enforcement of these rules could significantly increase the number of VAT payers.

Addressing this, Dr. Md Abdur Rouf, NBR Member, told Bonik Barta, “The law is enforced, though perhaps not on a large scale. But enforcement does take place.”

Farid Uddin, a former NBR Member (VAT and Customs), remarked to Bonik Barta, “There’s no real enforcement. It exists in books but not in practice. Compared to countries like Malaysia, Thailand, Singapore, Indonesia, South Korea, Japan, and Vietnam, Bangladesh—a poorer country—having a 15 percent VAT rate is unreasonable. Does the government even collect the full 15 percent, or do they pocket 10 percent through collusion and collect just 5 percent? The World Bank allocated BDT 6 billion to install electronic fiscal devices (EFDs) in shops, but the initiative failed. About BDT 4 billion was misused, and the rest wasted. In 2012, an internationally recognized VAT law was introduced, only to be repealed in 2019 by the same government and parliament, reverting to the outdated 1991 law.”

Another former NBR official, also speaking anonymously, pointed out to Bonik Barta a major flaw in Bangladesh’s VAT system—the practice of fixed VAT. “This system renders VAT management ineffective and allows massive tax evasion by large businesses. For instance, some companies show net monthly VAT payments that are 10–20 times lower than their treasury deposits. The question is: why do these businesses deposit such large sums to the treasury? The answer is that they pay VAT on a minimal portion of their business while evading substantial amounts. Auditing such businesses could yield significant results,” the former official added.

On December 9, during a press conference, NBR Chairman Md Abdur Rahman Khan said, “After the first VAT law was enacted in 1991, a new law was introduced in 2012. However, it could not be implemented because stakeholders were not consulted. As a result, despite income taxpayers exceeding 10 million, VAT payers remain only 500,000.”

On January 9, Imran Hasan, Secretary General of the Bangladesh Restaurant Owners Association, stated at a press conference, “Even though there are 482,000 restaurants in the country, 70 percent of them neither pay VAT nor are registered for it. Yet, the government is raising VAT rates instead of bringing them under the VAT system.”

Dr. Md. Abdur Rouf, NBR Member (VAT Implementation & IT), told Bonik Barta, “It is not entirely true that consumers do not want to pay VAT. Generally, people are willing to pay. Only a small portion of the population avoids it. If restaurants issue VAT invoices, customers have no alternative but to pay VAT. Such statements are often made just for argument’s sake.”

An NBR member, requesting anonymity, mentioned to Bonik Barta, “The core issue with Bangladesh’s VAT system lies in compliance with laws and policies. This area needs more focus. Proper utilization of the current digital system can help identify compliance gaps. In some sectors, the value addition rate is extremely low, even negative in certain cases. Prioritizing such sectors can yield better results. For example, sectors with minimal value addition, such as cement, ceramics, and rods, could be addressed through risk management. Particularly in the rod sector, the nominal VAT rate is absurdly low. Implementing a standard VAT policy in such cases would be beneficial.”

In the 2021–22 fiscal year, the number of VAT-registered businesses in Bangladesh reached 371,000, which was 291,000 in the previous fiscal year. This marks an increase of approximately 80,000 businesses in just one year. This reflects a growth of around 27 percent in VAT-registered entities within that period.

In February 2022, the VAT Intelligence Club’s publication ‘Bijoy Shopoth’ reported that there were about 330,000 registered businesses nationwide. However, a significant portion of businesses still remained outside the registration system, adversely impacting the overall ‘chain effect’ of VAT collection. A survey conducted by the VAT Intelligence Directorate in May 2021 revealed that about 78 percent of retail businesses in surveyed shopping malls, both in Dhaka and outside, had not registered for VAT.

Commenting on the recent increase in VAT rates, Akhter Hossain, Member Secretary of the Jatiya Nagorik Committee, said, “Imposing new burdens on the public during the current market crisis is unacceptable. Instead, the focus should be on expanding the scope of direct taxation and broadening the tax net, which would not directly harm people’s standard of living.”

The NBR has stated that, according to the law, business owners are recognized VAT collectors acting on behalf of the NBR. However, some businesses fail to fulfill this responsibility appropriately, often withholding collected VAT from the government treasury. Despite customers paying VAT, the government does not receive it, which essentially amounts to misappropriation of public funds. The VAT authorities are obligated by law to investigate or take action whenever such allegations arise.