Value Added Tax (VAT) in Bangladesh: A Comprehensive Overview
1. Introduction
Value Added Tax (VAT) is a form of indirect tax imposed on the consumption of goods and services in Bangladesh. It was first introduced in 1991 through the Value Added Tax Act, 1991 and later modernized with the Value Added Tax and Supplementary Duty Act, 2012, which came into effect on 1 July 2019. The National Board of Revenue (NBR) administers VAT collection across the country.
VAT is a crucial revenue source for the Government of Bangladesh, accounting for more than 35–40% of total tax revenue.
2. What is VAT?
VAT is a multi-stage consumption tax collected at every stage of the supply chain (import, production, distribution, and sale) based on the value added to goods and services.
The final consumer bears the ultimate tax burden.
Businesses act as VAT collectors on behalf of NBR.
3. VAT Rates in Bangladesh
Under the VAT & SD Act, 2012, the standard VAT rate in Bangladesh is 15%.
However, other special rates and exemptions also apply:
Reduced VAT rates: 5%, 7.5%, 10% (for specific goods/services).
Zero-rated goods/services: Exports (to encourage international trade).
Exempted goods/services: Certain basic commodities, education, healthcare, agricultural products, etc.
4. Supplementary Duty (SD)
In addition to VAT, certain goods and services are subject to Supplementary Duty (SD), which is imposed on luxury or socially harmful products, such as:
Cigarettes and tobacco products.
Soft drinks, alcohol, and energy drinks.
Cosmetics, perfumes, and luxury items.
Telecommunications services.
The SD rate varies depending on the product, ranging from 10% to 350%.
5. VAT Registration
Businesses are required to register for VAT if they meet certain criteria:
Any business with an annual turnover above BDT 3 crore must obtain a Business Identification Number (BIN) from NBR.
Businesses with turnover below the threshold may register under a Turnover Tax Scheme at a reduced rate (typically 4%).
6. VAT Calculation Example
Suppose a manufacturer produces goods worth BDT 100, adds 20% value, and sells it for BDT 120:
VAT @ 15% = BDT 18
Total sale price to wholesaler = BDT 138
At each subsequent stage (wholesaler → retailer → consumer), VAT is applied only on the value added, ensuring no double taxation.
7. Input Tax Credit (ITC)
Businesses can deduct the VAT they pay on purchases (inputs) from the VAT they collect on sales (outputs).
This mechanism ensures that VAT is paid only on the value added at each stage of production and distribution.
8. VAT Payment and Returns
Return Period: Monthly.
Deadline: The 15th of the following month.
Filing System: VAT returns must be submitted electronically through the NBR VAT Online Portal.
Businesses must maintain proper VAT records, invoices, and documentation to support returns.
9. VAT Exemptions
Certain essential goods and services are VAT-exempt to protect low-income consumers and promote welfare. Examples include:
Basic food items (rice, vegetables, fish, meat).
Education services.
Health and medical services.
Books and printed materials.
Agricultural equipment and inputs.
10. VAT Enforcement and Penalties
Non-compliance may result in:
Fines for late VAT return submission.
Penalties for underreporting or failing to issue VAT invoices.
Business license suspension in severe cases.
11. Special VAT Regimes
Bangladesh applies special VAT treatment to certain industries:
Export-Oriented Industries: Zero-rated VAT to encourage foreign trade.
Small and Medium Enterprises (SMEs): Turnover-based tax (lower rate).
Telecommunication Sector: High VAT + SD due to high revenue potential.
12. Challenges in VAT Implementation
Lack of awareness among small businesses.
Limited digital literacy for online filing.
VAT evasion through under-invoicing.
Complex compliance procedures.
13. Recent Developments
Introduction of VAT Online Project (VoP) to digitize registration, return filing, and payment.
Integration of Electronic Fiscal Devices (EFDs) for retail businesses.
Efforts to broaden the VAT base and reduce dependency on direct taxation.
More incentives for exporters and IT-based industries.
✅ Summary
VAT in Bangladesh is a broad-based consumption tax that ensures government revenue while distributing the tax burden across the production and supply chain. The standard VAT rate is 15%, supplemented by special rates and Supplementary Duties on luxury and harmful products. With ongoing digital reforms, VAT administration is becoming more transparent, efficient, and business-friendly.