VAT paid by public often fails to reach treasury, warns Finance Adviser

Finance Adviser Dr Salehuddin Ahmed has expressed concern that, in many cases, VAT paid by the public fails to reach the government treasury.

He 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 for generating government revenue," he emphasised.

Dr Salehuddin Ahmed made these remarks as the chief guest at a seminar held at the Revenue Building to mark National VAT Day.

The seminar was chaired by Md Abdur Rahman Khan, Chairman of the National Board of Revenue (NBR).

He further noted that the country’s tax-to-GDP ratio remains alarmingly low. "How can the government function without increasing its resources?" he questioned.

"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 Finance Adviser also pointed out that relying on loans or foreign grants is 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."

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

"VAT collection is still not at the expected levels, but there is potential for improvement," he said.

“On one hand, consumers must be prepared to pay VAT, and on the other, businesses must ensure VAT is collected and remitted to NBR.”

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

Nazma Mobarek, Secretary of the Financial Division of the Ministry of Finance, highlighted that several reforms have been introduced, which have 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."

NBR Chairman Abdur Rahman Khan compared revenue collection to harvesting honey.

 "We must nurture taxpayers. If we harm the goose that lays golden eggs, it won't 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 added, "While revenue is increasing, it is not growing at the expected rate. The turnover threshold was reduced at Tk5 million from Tk300million, but we haven’t seen the expected number of registrations.”

He said that “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," National VAT Day and VAT Week are being observed across all divisional cities and commissioner offices, including in the capital.

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