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The National Board of Revenue (NBR) would formulate a 'perspective plan' to strengthen its VAT (Value Added Tax) collection drive and increase internal resources to help implement the country's development initiatives.
The plan would prioritise issues like reform in the VAT management structure, expansion of VAT net and conducting feasibility study on achieving the VAT collection growth, assessing the impact of upward or downward adjustment of VAT rates.
The NBR is going to undertake such a plan for the first time against the backdrop of untapped VAT potentials, to be around 50 per cent, for meeting the increased requirement for internal resources to help the government implement its other strategic plans, officials said.
The NBR last week formed a five-member committee, headed by Dr Md Abdur Rouf, Director General of Customs Intelligence and Investigation Directorate, to prepare the plan and submit it to the chairman by next 30 days.
The committee will have to consider the proposals of the national committee and sub-committees formed earlier to recommend necessary measures to face the upcoming challenges of the country's graduation from the least developed country (LDC) status by 2026.
The committee will be able to mobilise opinion from the stakeholders, experts and VAT officials if necessary.
Talking to the FE, Dr Rouf said around 50 per cent of the VAT potentials still remained untapped while 40 per cent is exempted.
"Considering the size of the country's GDP, VAT collection should be higher than that of the current level," he said, adding that the exemptions should not be more than 10 per cent as the country needs more internal resources to implement its different strategic plans.
He said the tax-GDP ratio now is only 7.9 per cent, which is much lower than the country's strategic target of 16 per cent set for 2010-2021.
In the next plan for 2021 to 2041, the tax-GDP target has been fixed at 22 per cent.
Achieving such a sharp growth of tax-GDP ratio would require devising an effective plan to mobilise internal resources, said Dr Rouf.
Currently, some 55 per cent of the NBR's tax revenue comes through implementation of VAT and Supplementary Duty Act-2012.
Dr Rouf said that gradually import tax collection would go down as a rate of highest 25 per cent could be kept as a signatory of different global treaties.
He said the VAT would be the prime source of revenue in line with the perspective plan of the NBR.
The digitisation of the VAT wing has already started paying off to the public exchequer as both the number of VAT-registered businesses and VAT returns submission was showing impressive growth.
However, the collection of VAT, known as consumption tax, is not consistent yet in Bangladesh in line with the growing consumption pattern and economic growth.
In FY 2020-21, the government had set a target to collect Tk 1.28 trillion VAT from the domestic sources and achieve a VAT-GDP ratio of 5.16 per cent from 3.02 per cent in the previous year.
However, the NBR collected Tk 975 billion VAT from domestic sources which was 37 per cent of the total tax revenue collection of NBR and down from 39 per cent of the previous FY.
Officials said that proper planning could help address the major loopholes of VAT collection and move forward with an action plan.