All businesses to come under mandatory VAT net

The government is set to introduce sweeping VAT reforms in the upcoming national budget, making VAT registration mandatory for virtually all businesses in Bangladesh as part of efforts to boost revenue collection.

According to Finance Ministry sources, no business will be able to operate outside the VAT system. A Business Identification Number (BIN) will become compulsory for access to seven key services, including opening and operating current or STD bank accounts, obtaining loans, renewing trade licences, opening merchant accounts with mobile financial service providers, securing membership of trade bodies, obtaining electricity and gas connections, and registering vehicles in a company's name.

Official figures show Bangladesh has around 11.7 million business establishments, yet only about 775,000 are VAT-registered. As a result, a large number of businesses currently remain outside the tax net. The National Board of Revenue (NBR) expects at least two million additional businesses to come under VAT through the new measures.

Business leaders have criticised the move, arguing that linking VAT registration to essential services could hinder ease of doing business. Mohammad Hatem, President of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said that while VAT registration may be necessary, the entire process should be fully digital, automated and free from harassment.

The government argues that the reforms are needed to expand the VAT base, improve transparency and strengthen accountability.

VAT Changes Across Sectors

Alcohol to become more expensive:

For the first time, domestically produced foreign liquor may be subject to a specific VAT of Tk500 per litre. The measure is intended to discourage consumption and increase revenue, potentially generating at least Tk40 billion for the state treasury.

Gold jewellery to become more affordable:

The government is considering replacing the current 5% VAT with a fixed VAT of Tk2,000 per bhori of gold jewellery and per carat of diamond. Industry representatives say this could significantly improve compliance and increase revenue.

Tax relief for cosmetics:

Supplementary duty on locally produced lip, eye, hand, nail and foot cosmetics, as well as powder products, may be reduced from 10% to 5% to support domestic industries and lower consumer prices.

Read More

Top in contribution, bottom in budget allocation

Lower SIM card VAT:

The existing fixed VAT of Tk300 on each SIM card or e-SIM may be scrapped and replaced with a 15% VAT on sales, potentially reducing costs for consumers.

Bank deposit relief:

The excise duty threshold on bank deposits may be raised from Tk300,000 to Tk500,000. Deposits above Tk500,000 would be subject to a Tk500 duty, benefiting low- and middle-income account holders.

Appeal costs to be reduced:

Businesses contesting VAT-related penalties may only need to pay 2% of the disputed amount to file an appeal, down from the current 10%.

Revenue Challenge

The government has set a VAT collection target of Tk223.48 billion for the next fiscal year, up from Tk186.63 billion in FY2025-26. With collections reaching Tk126.54 billion during the first ten months of the current fiscal year, achieving the new target is expected to be a major challenge.

Source: Kaler Kantho