Improving Tax Compliance in Bangladesh: A Study of Value-Added Tax (VAT)

The tax-GDP ratio in Bangladesh was very low (10.6%) when compared with her South Asian neighbours. This was mainly because of the poor compliance rates in both income tax and value-added tax (VAT). Secondly, consumption taxes are the largest source of revenue in middle-income countries and in less-developed countries. In Bangladesh, VAT contributes more than 50% of total tax revenue. Thirdly, available evidence showed that VAT productivity in Bangladesh was lower than the average level of low-income countries. This paper attempts to analyze how tax revenue can be enhanced by improving VAT compliance. The new VAT Act appears to be business friendly and revenue augmenting. However, implementing the new VAT Act entails many challenging implementation tasks. These tasks include re-designing the VAT administrative processes, rationalizing the current organizational arrangement, acquiring and configuring a new computer system, recruiting and training the staff and educating taxpayers and the public on their obligations under the new law.

Author: Ahmed, Nasiruddin
Type: Working Paper
Year: 2013