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The government is planning a major expansion of the value-added tax (VAT) network, targeting small businesses in districts, upazilas and rural areas as part of efforts to raise revenue and widen the country’s narrow tax base.

Under the proposal, the National Board of Revenue is considering a fixed “token” VAT of Tk500 to Tk1,000 for small businesses on a trial basis, alongside making a Business Identification Number (BIN) mandatory for trade licences and business bank accounts.

Officials said the measures could be included in the FY27 budget if approved by the finance minister and the prime minister.

Revenue authorities say the move is aimed at bringing a large informal economy into the formal tax system, particularly in rural areas where most small enterprises remain outside VAT coverage.

“We have plans to extend VAT coverage down to the rural level. Initially, a small fixed VAT could help smaller traders become accustomed to tax compliance,” a senior official said.

Officials also believe linking BIN registration with banking and trade licensing could significantly expand the tax net.

The push comes as Bangladesh faces mounting pressure to improve its tax-to-GDP ratio, one of the lowest in the region, while revenue collection continues to lag behind targets. In the first nine months of the current fiscal year, revenue grew 11% year-on-year but still fell nearly Tk98,000 crore short of the target.

Data show the country’s untaxed informal economy is vast and growing. According to the latest economic census, Bangladesh now has around 1.17 crore economic units, up sharply from 78 lakh in 2013. More than 99% are cottage, micro and small businesses, with nearly three-quarters operating in rural areas.

Yet only around 8 lakh businesses currently hold BINs, and just over 5 lakh submit VAT returns.

Economists and business leaders have welcomed efforts to broaden the tax base, but warned against abrupt implementation.

“Collecting small amounts of VAT from small businesses is possible, but the government must ensure the money reaches the treasury and does not create new avenues for informal payments,” an economist said.

Business leaders also cautioned that making BIN mandatory for all small enterprises without a gradual rollout could discourage licence renewals and increase field-level harassment.

Tax experts suggested a phased approach over several years, backed by stronger oversight and better digital systems, to ensure compliance without disrupting small businesses.

For the government, however, the message is clear: with revenue pressure mounting, the village economy is now firmly in the tax authority’s sights.