Written by The Banking Post
The government is weighing a return to the package VAT system, aiming to draw small and informal businesses into the tax net as compliance under the current regime remains weak.
Officials at the National Board of Revenue say the move targets marginal enterprises that struggle to maintain formal accounts under the existing value-added tax framework.
Package VAT, a fixed monthly payment often collected through trade bodies, was scrapped in 2019 after the introduction of a new VAT law and digital tax systems. But authorities now admit that efforts to bring small businesses—particularly in retail hubs and growth centres—under the standard VAT regime have fallen short.
“We are overhauling the VAT law to make compliance easier for small and medium enterprises,” said the NBR chairman, adding that data is being compiled to introduce a simplified, fixed VAT structure for smaller firms.
The gap in tax coverage remains stark. While around 12.8 million taxpayers are registered under income tax, only about 0.8 million entities are within the VAT net.
Business leaders have largely welcomed the proposal but cautioned against setting rates too high. “When the package VAT was increased sharply in the past, many small businesses dropped out of the system,” said a trade body leader.
Before its abolition, revenue from package VAT had already been declining. Collections fell from Tk 23.81 billion in FY2015-16 to Tk 18.91 billion the following year, eventually dropping to Tk 11.75 billion by February FY2018-19.
Traders also blamed corruption and discretionary enforcement for weak compliance. “Many businesses were willing to pay VAT but were discouraged by officials seeking informal payments,” said a trader.
However, not all experts support the move. Some argue that reintroducing package VAT could complicate the tax system further without significantly boosting revenue.
Instead, they suggest scrapping turnover tax—seen as generating negligible revenue—and lowering trade VAT rates to encourage compliance, while focusing on helping small businesses grow before expanding the tax burden.
As the government prepares the next budget, the proposed revival reflects a broader push to widen the tax base while balancing enforcement with ease of compliance.
