Written by The Banking Post
Bangladesh is steadily moving toward a uniform 15 per cent value-added tax (VAT) regime, a shift that initially raises concerns over higher rates but is designed to lower the actual tax burden through wider rebate eligibility.
Officials at the National Board of Revenue (NBR) say the transition marks a clear departure from the long-standing practice of applying multiple reduced VAT rates on industrial raw materials and services. Instead, recent fiscal policies are nudging businesses to opt for the standard rate, where input-tax rebates can significantly cut effective VAT costs.
At present, VAT is applied at several reduced rates ranging from 1.5 per cent to 10 per cent. However, budgets over the past two fiscal years have made these lower rates less attractive by limiting rebate benefits, often leaving firms with a higher overall tax incidence than under the 15 per cent regime.
A senior VAT official said that since January last year, and again in the current budget, 120 items across manufacturing and services have been shifted to the standard rate. Only 45 items now remain under reduced rates, with plans to bring most of them under the 15 per cent umbrella within the next two to three years.
“We are not forcing businesses to move to the higher rate,” the official said. “They are choosing it themselves because rebate claims help reduce their actual VAT burden.”
The NBR has already seen results. After trading VAT was raised to 7.5 per cent in the current fiscal year, many traders moved to the 15 per cent rate to offset costs through rebates on raw material purchases. Construction firms and large retail chains have also begun phasing out reduced rates.
Tax experts argue that the headline rate does not reflect the real burden. According to the chairman of the International VAT Training Institute, effective VAT can fall to between 3 and 5 per cent if input credits are properly claimed. He noted that while a 15 per cent rate supports the government’s heavy reliance on VAT revenue, businesses often favour reduced rates because of simpler compliance.
He cautioned, however, that shifting all sectors to the standard rate at once would be difficult in a diverse economy like Bangladesh. VAT structures vary widely across the world, with rates ranging from as low as 3 per cent in some territories to as high as 27 per cent in parts of Europe, while the global average stands near 18 per cent.
Industry leaders have urged a phased approach. The chief executive of LafargeHolcim Bangladesh said reduced rates remain necessary for sectors that source inputs from informal markets where VAT collection is impractical. He suggested a clear roadmap for small and medium enterprises, while bringing large importers and industrial units under the standard rate.
“Moving too fast could hurt the financial system, as many small traders lack the accounting capacity needed to claim rebates,” he warned.
Executives from multinational firms say the law already requires them to operate under the 15 per cent regime. A senior finance executive of a leading consumer goods company said paying the standard rate is necessary to remain compliant and eligible for input-tax credits, as reduced rates apply only to specific listed items.
Business leaders also cautioned that an overly aggressive push could backfire. High VAT rates, they warned, may encourage evasion if not matched with realistic compliance requirements and administrative support.
For now, policymakers appear committed to a gradual shift—betting that rebates, rather than reduced rates, will define the future of VAT in Bangladesh.
