Urgent reforms needed to curb VAT leakage, expand tax net: Salehuddin

Finance Adviser Dr Salehuddin Ahmed has underscored the urgent need to curb VAT leakage, widen both VAT and income tax coverage, and modernise Bangladesh’s tax administration.

“Bangladesh’s economic progress depends fundamentally on its ability to mobilise domestic resources rather than relying excessively on foreign loans and grants,” he said on Wednesday at a seminar organised at the Multipurpose Hall of the Revenue Building in the capital to mark VAT Day and VAT Week.

The adviser stressed that VAT remains one of the most powerful and modern forms of taxation worldwide, yet Bangladesh continues to collect far less VAT as a share of GDP compared to neighbouring countries, even though the economy has expanded significantly, reports UNB.

“There is no doubt about the need for VAT. In many countries, VAT contributes far more to national income. In our country, however, VAT collection remains extremely low compared to GDP,” he said.

The Finance Adviser pointed out that a major obstacle is VAT leakage at the retail and business levels.

“A very unfortunate reality in Bangladesh is that VAT sometimes does not reach the government’s treasury,” he said.

He called for a fundamental shift in mindset among businesses and consumers so that both parties accept VAT as a national obligation and insist on proper documentation and compliance.

He urged customers to demand VAT invoices and expect businesses to remit VAT properly. “People must be convinced that paying VAT ultimately benefits them—through improved public services,” he added.

Dr Ahmed also expressed concern about the country’s chronically low tax-to-GDP ratio, saying Bangladesh cannot fulfil its development ambitions without strengthening domestic revenues.

Priority sectors such as education, healthcare and social protection remain constrained when the state is forced to rely on external borrowing, he said.

“The biggest challenge is that our tax-GDP ratio is extremely low. Without increasing our own resources, how will we carry out development work? Loans and grants restrict our flexibility and limit our ability to prioritise the needs of our people,” he said.

“For people to pay tax willingly, the government must ensure that taxpayers receive services and trust that their money is used properly,” he said.

The Finance Adviser urged the National Board of Revenue (NBR) to move swiftly to broaden the system, modernise processes and make tax compliance more convenient.

He also suggested gradually reducing reliance on supplementary duties, increasing the share of income tax and VAT, and strengthening non-tax revenues.

“If the system is made easier and modernised, people will not hesitate to pay VAT. We must expand good practices, reduce hassle, and strengthen enforcement to ensure that VAT reaches the treasury,” he said.

He expressed optimism that if reforms continue over the next two months, a significantly modernised and streamlined system will be ready for the next government to take forward.

Finance Secretary Dr Md Khairuzzaman Mozumder, Economic Relations Division Md Shahriar Kader Siddiky, Financial Institutions Division Nazma Mobarek, FICCI Vice President Yasir Azman, ICCB president Mahbubur Rahman and Policy Research Institute chairman Dr Zaidi Sattar also spoke.

NBR Chairman Md Abdur Rahman Khan presided over the seminar, where NBR Member (VAT audit) Syed Mushfequr Rahman presented the keynote paper.

NBR Member (VAT Policy), Md Azizur Rahma,n delivered the welcome address.