Single VAT rate, fewer exemptions in push for higher revenue

The government is set to prioritise sweeping tax reforms in the upcoming Budget FY27, focusing on introducing a single value-added tax (VAT) rate and reducing longstanding tax exemptions to boost revenue collection. The move comes as authorities aim to significantly increase the country’s tax-to-GDP ratio and address persistent shortfalls in revenue mobilisation.
Officials said the National Board of Revenue (NBR) is likely to be given an ambitious collection target of around Tk6.04 lakh crore for the next fiscal year, marking a more than 20% increase from the current year’s revised target. However, achieving this goal remains a major challenge, as revenue growth has so far lagged behind expectations.
To narrow the gap, policymakers are planning to replace the existing multiple VAT rates with a uniform structure, a step expected to simplify compliance and reduce opportunities for tax evasion. At the same time, exemptions under the Tax Expenditure Policy and Management Framework will be scaled back, as such incentives are estimated to account for a significant portion of foregone revenue.
The reform drive also includes identifying sectors prone to tax evasion, rationalising VAT administration, and implementing short-term action plans based on recommendations from a government-formed task force. Authorities believe these measures will help streamline the tax system and improve overall efficiency.

In recent months, the NBR has already introduced several initiatives to strengthen revenue collection. Online submission of income tax returns has been made mandatory for individual taxpayers, while the use of ASYCUDA data has been enforced across customs and income tax wings to enhance information sharing and verification.
Additionally, the government has launched a Tk1,000 crore project, supported by the World Bank, to fully digitise tax administration under the “Strengthening Domestic Revenue Mobilisation” programme. The initiative is expected to reduce compliance gaps and increase transparency in the system.
Despite these efforts, Bangladesh’s tax-to-GDP ratio remains among the lowest globally, standing at 6.8% last fiscal year. The government now aims to raise it to over 9% in the coming fiscal year by expanding the tax base and bringing more individuals and businesses under the tax net.
Economists, however, caution that without deep structural reforms, such ambitious targets may remain out of reach. They stress the need for simplifying tax laws, improving enforcement, and ensuring strong political commitment to reform.

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