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Introducing VAT Should Be Foremost Priority For Bangladesh

by Mary Swire, Tax-News.com, Hong Kong

03 October 2014


The International Monetary Fund has said that the introduction of an improved value-added tax (VAT) regime in Bangladesh is facing delays, which could hold up the scheduled implementation of new legislation from 2015. The Fund has said that the introduction of the new regime should be the country's key priority.

The Fund reported: "With a calmer political environment, economic activity is gaining momentum, and real gross domestic product (GDP) growth is expected at about 6.25 percent in fiscal year 2015 (July 2014-June 2015), supported by strong domestic demand. There has also been progress on structural reforms. However, the introduction of a new VAT, a key government reform to boost fiscal space for development spending, is facing delays."

In 2013, value-added tax accounted for 37.5 percent of government revenues, but the nation's tax-to-gross domestic product ratio is far behind other developing nations. The new law, which authorities aimed to have in place by 2015, aims to improve the tax-to-GDP ratio by providing better services and reducing administrative costs for taxpayers. Efforts are also to be launched to better educate taxpayers in the hopes of increasing the number of VAT-registered businesses from 35,000 to 85,000 within the first five years.

Emphasizing the importance of implementing the new VAT law in earnest, the IMF said: "The persistent revenue shortfalls relative to budget expectations reinforce the importance of pressing ahead with tax reforms. Implementing the new VAT remains the foremost priority, as it has the potential to mobilize considerable additional resources, reduce compliance costs, and boost growth. This should be complemented by reforms to strengthen revenue administration and automate data management and reporting procedures."

Bangladesh's current value-added tax regime features a 15 percent rate. In 2013, Finance Minister Abul Maal Abdul Muhith said that the VAT reforms would substantially broaden the tax base and that the rate could be lowered within two years, to about ten percent, to improve the nation's competitiveness.

TAGS: compliance | VAT rates | tax | business | value added tax (VAT) | VAT legislation | law | gross domestic product (GDP) | budget | legislation | Bangladesh | tax reform

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