VAT paid by public often fails to reach treasury

Finance Adviser Dr Salehuddin Ahmed has noted with concern that VAT paid by the public often fails to reach the government treasury.

He has described this as "unfortunate" and stressed the need to simplify procedures to ensure that VAT is properly deposited.

"VAT is a modern and powerful mechanism to generate government revenue," he emphasised in his speech as the chief guest at a seminar on Wednesday.

The seminar, held at the Rajaswa Bhaban in the capital to mark the National VAT Day and VAT Week, was chaired by Md Abdur Rahman Khan, chairman of the National Board of Revenue (NBR).

Dr Salehuddin further noted that the country's tax-to-gross domestic product (GDP) ratio remained alarmingly low.

"How can the government function without increasing its resources?" he questioned, stressing that revenue must be increased.

"In some countries, a tax-to-GDP ratio of 26 per cent allows them to provide essential services. We must ensure that we achieve this here.

When people receive services in health and education, they will be more willing to pay taxes."

The adviser also pointed out that relying on loans or foreign grants was not a sustainable, long-term solution.

"Without domestic resources, how can the government manage critical sectors, such as health, education, and development?" he asked.

"Borrowing comes with interest burdens, and it limits flexibility in public spending."

At the seminar, Mahbubur Rahman, President of the International Chamber of Commerce (ICC) Bangladesh, acknowledged that VAT had faced resistance from the very beginning.

"VAT collection has not yet reached the expected levels, but there is potential for improvement," he said.

"On the one hand, consumers must be prepared to pay VAT, and on the other, businesses must ensure VAT is collected and deposited in the government exchequer," he also said.

There must be no deviation from this, and awareness about the consequences of non-compliance needed to be raised, he added.

Nazma Mobarek, secretary of the Financial Institutions Division, highlighted that several reforms had been introduced and those had created positive momentum.

"This momentum needs to be sustained," she said.

"The automation of processes has been a significant success, and VAT exemptions have been reduced. This has led to greater transparency and accountability," she added.

The NBR chairman compared revenue collection to harvesting honey.

"We must nurture taxpayers. If we harm the goose that lays golden eggs, it will not work," he cautioned.

"There should be no harassment or oppression. Businesses do not directly pay VAT; they collect it from the public. This system must be implemented correctly."

He further said, "While revenue is increasing, it is not growing at the expected rate. The turnover threshold was reduced to Tk 5 million from Tk 300 million, but we have not seen the expected number of registrations."

"We know who is operating outside the system. Now, many are considering investing abroad because they feel they do not receive sufficient support from our tax administration. If we cannot nurture those who pay taxes, investment will not grow."

Under the theme "Register on Time, Pay VAT Properly", the National VAT Day and VAT Week are being observed across all divisional cities and commissionerates, including in Dhaka.

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