To secure a new loan program from the International Monetary Fund (IMF), the National Board of Revenue (NBR) is planning to phase out VAT exemptions by 2030 and implement a uniform 15% VAT rate.
However, the government has suggested that essential food items, education, healthcare, and public transportation should remain outside the proposed scope.
This information was learned on Tuesday (October 20) from National Board of Revenue (NBR) sources.
An NBR delegation recently presented this reform plan during a meeting with the IMF's technical committee in Washington.
The revenue reform proposals and implementation plans are expected to be evaluated during an upcoming visit by a high-level International Monetary Fund delegation to Dhaka in November.
Currently, over 500 goods and services—including electronics, computer products, the metro rail, restaurants, apparel, steel, aluminum, sanitary napkins, and diapers—benefit from reduced VAT rates ranging from 2% to 10% or complete exemptions.
If these benefits are withdrawn gradually, the prices of these products and services could rise.
Package-based VAT benefits for gas and electricity supplies, as well as for small and medium-sized enterprises, are also currently under review.
An initiative to introduce a single 15% value-added tax rate in 2015 stalled due to opposition from the business community.
Concerns remain that businesses may again object to the proposed rate and implementation strategy.
However, the NBR's plan remains at the proposal and discussion stage.
Under the National Board of Revenue (NBR) plan, all types of Value Added Tax (VAT) exemptions are scheduled to be phased out by the year 2030. At the same time, authorities plan to implement a nationwide uniform VAT rate of 15 percent.
A senior National Board of Revenue (NBR) official, speaking on condition of anonymity, stated that securing a loan from the International Monetary Fund (IMF) entails several conditions. These requirements include the elimination of tax exemptions, tax rationalization, the simplification of tax collection procedures, and an increase in the tax-to-GDP ratio.
Because the government is pursuing a new loan agreement with the organization, several revenue-sector reforms must be executed according to their terms.
However, the country's socio-economic conditions will be taken into account during the implementation of these reforms.
According to NBR sources, a high-level IMF delegation is scheduled to visit Dhaka during the first week of November to evaluate the framework for the new loan and revenue reforms.
The plan to reduce VAT exemptions was presented to the IMF technical committee as part of the initial discussions for this new program.
Under an earlier $4.7 billion loan program approved in January 2023, Bangladesh had committed to boosting revenue collection and executing deep reforms in the banking and energy sectors.
According to the latest National Board of Revenue (NBR) report, the revenue lost due to various tax concessions and relief facilities in fiscal year 2023 exceeded Tk1.29 lakh crore, which is equivalent to 3.3% of the country's total gross domestic product (GDP).
During the same fiscal year, the National Board of Revenue's (NBR) actual value-added tax (VAT) collection stood at Tk1.25 lakh crore. This meant the amount exempted was higher than the amount actually collected.
While attending an International Monetary Fund (IMF) conference in Thailand recently, Finance Minister Amir Khasru Mahmud Chowdhury stated that meeting certain conditions is necessary to secure loan assistance from the IMF.
Discussions regarding a new program have taken place, and while conditions will exist, they must be fulfilled, with consensus reached on key issues through negotiation.
Why it matters
The implementation of a uniform VAT rate and the phasing out of exemptions will reshape national tax policy and impact consumer prices.