The National Board of Revenue (NBR) is preparing to introduce a uniform value-added tax (VAT) rate in the next fiscal year’s budget, phasing out the current multi-tiered structure.
The move comes in response to recommendations from the International Monetary Fund (IMF), which has tied its loan conditions to sweeping revenue sector reforms.
Officials at the NBR claim that a single VAT rate would significantly increase collection, reduce evasion and simplify accounting procedures. They argue the reform will bring clarity and transparency to VAT administration.
However, economists have cautioned that such a shift could result in the elimination of lower VAT slabs, leading to higher rates for several goods and services. This, in turn, would likely drive up consumer prices, placing a greater burden on end-users.
The NBR's proposal is to be sent to the Ministry of Finance, which will assess its merit before presenting it to the Advisory Council. The Council may approve, amend or reject the proposal following further scrutiny.
According to the proposal, most goods and services currently fall under VAT rates between 5 and 10%. The NBR suggests scrapping these in favour of a unified rate, which would lie between 10 and 15%—potentially set at 10, 11, 12, 13, 14, or 15%.
NBR Chairman Dr Md Abdul Rahman Khan told the press that VAT is the largest contributor to revenue and that enhancing transparency and accountability in its collection could multiply earnings severalfold.
He emphasised that stakeholder consultations will precede any final decision.
Distinguished Fellow at the Centre for Policy Dialogue (CPD), Mustafizur Rahman, noted that discussions around a single VAT rate are not new. He said that significant reforms are expected in the next budget and that technology will play a key role in easing VAT compliance.
However, he warned that any single rate must remain in the lower range to avoid undue pressure on consumers.
Former caretaker government finance adviser Dr AB Mirza Md Azizul Islam pointed out that the original 2012 VAT Act included a single rate—an IMF recommendation the government at the time was unable to enforce due to widespread opposition.
He cautioned that abolishing lower rates in favour of higher ones would undoubtedly raise VAT in affected sectors.
He also observed that many consumers pay VAT unwittingly as part of the retail price, unaware of how much tax they are actually paying.
Thus, any hike in VAT would directly translate into increased prices, he said, arguing that a 15% rate across the board would be excessive for many.
The NBR report sent to the Finance Ministry highlights that sectors such as cigarettes, mobile phones, fuel, automobiles, cement and banking already attract the maximum 15% VAT, contributing around 80% of total VAT revenue.
While some goods are taxed at a flat rate (specific tax), in practice, many pay less than the stipulated rate due to systemic inefficiencies.
The IMF has approved a loan of $4.7 billion to Bangladesh, contingent upon reforms in the revenue sector, including a single 15% VAT rate.
The target is to collect Tk 6.38 trillion in VAT over four years—Tk 1.21 trillion in the first year, rising to Tk 2.038 trillion by 2026.
Former NBR chairman Dr Md Abdul Mazid confirmed that the IMF is exerting pressure on the revenue authority to meet these ambitious targets.
While a flat VAT rate would boost collections, he acknowledged that higher costs would fall on consumers—posing little problem for the wealthy but significant hardship for lower-income groups.
Mazid stressed that expanding the VAT net would be a more sustainable solution than increasing rates. “If coverage is broadened, collections could increase severalfold without altering the rate,” he said.
An NBR budget committee official, speaking on condition of anonymity, said that despite higher rates being in place, many businesses underreport and pay less VAT. “If a flat rate can be enforced, evasion will decrease,” the official added, admitting that previous attempts were thwarted by strong resistance from influential business groups.
