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It is reported on 26 April, 2026 on the Financial Express that the government is considering reintroduction of package VAT-a fixed amount of VAT on small retail traders abolished in July 2019, following introduction of the new VAT law. There is a misunderstanding even among the concerned people about the abolition of package VAT and its impact. It is even understood that package VAT was abolished and in that place standard VAT was introduced, so those small retail traders are at disadvantage requiring justice. On this point, I believe, the need for reintroduction of package VAT has gained momentum recently. But the real scenario is completely different. The small retail traders eligible for package VAT along with some other traders with even larger business turnover remain outside VAT net under the current VAT regime. So, the need for reintroducing package VAT does not arise when they do not require paying VAT.
Under the previous VAT regime that ended in June, 2019, package VAT was in place only for small retail traders who had yearly sale of about Taka 5 lac or near. But under the current VAT regime that started from July 2019, all entities with yearly business turnover below Taka 30 lac remain outside VAT net. So, the rationale for reintroduction of package VAT becomes fade.
The VAT Regime
We need to keep in mind the basics of VAT regime of Banglaesh to get the point I am trying to make today. VAT is collected at import stage-we call it import VAT. VAT is collected at manufacturing stage-we call it production VAT. VAT is collected on the provision of services-we call it service VAT. VAT is collected at trading stage-we call it trade VAT. Under trade VAT, there falls dealer, distributor, commission agent, general store, departmental store, super shop, shopping mall, wholesaler, retailer etc. Trading stage remains widely dispersed with biggest entities as like as Walton Plaza and smallest entities as like as small shops at our neighbourhood.
If we look at the revenue scenario, last year NBR collected about Taka 1,56,000 core from domestic VAT. Of the amount, about 50 per cent came from manufacturing, about 40 per cent from service, about 5 per cent from trading and about the rest 5 per cent from Advance Tax (AT). Mentionably, import stage AT is shown with domestic collection but import stage VAT and SD is shown with import stage collection. In monetary value, trade VAT stands at about Taka 7,000 crore. Package VAT stands at the periphery of trade VAT that generated insignificant amount of VAT. So, an attention on package VAT is again misplaced.
The Trade VAT Regime
Commercial importers are traders. Those who purchase goods from commercial importers, manufacturers, local traders and then sell, they are traders. Traders can pay 15 per cent output VAT and can take input tax rebate. Out of the total about 8 lac VAT registered entities, about 2.5 lac are traders. Only a small number of them pay 15 per cent output VAT taking input tax rebate. A good number of traders pay 7.5 per cent output VAT without taking input tax credit. A large number of traders pay scanty amount of VAT. The lion's share of about Taka 7,000 crore trade VAT is paid by a small number of traders, though understatement also remains rampant. About 50 per cent of the registered traders do not submit VAT return. Lacs of small traders are now remain unregistered under VAT and do not pay any VAT. Mostly, they fall under Taka 30 lac bracket requiring no VAT registration. Under the above realities, we need paying more attention on the big and medium traders-not upon the package VAT eligible micro units.
The Package VAT Regime
Under the previous VAT regime, package VAT was meant for small retail traders only. We know that traders are of various types, such as: dealer, distributor, commission agent, super shop, shopping mall, departmental store, general store, wholesaler and retailer. From among them only the small retail traders were eligible to pay package VAT. There was a method of determining package VAT eligibility. They were large in numbers but the amount of VAT they paid was scanty. Package VAT was then ironically called as 'packet VAT'-reintroduction of the same may reintroduce the same possibility.
Annual maximum value addition was the criteria for ascertaining the status of the small retail traders. In the Dhaka (North), Dhaka (South) and Chittagong City Corporation areas, for retail traders, yearly maximum value addition was ascertained at Taka 1,86,667 with a fixed amount of minimum Taka 28,000 package VAT. In other City Corporation areas, for small retail traders, yearly maximum value addition was ascertained at Taka 1,33,334 with a fixed amount of minimum Taka 20,000 package VAT. In the district municipal area, for small retail traders, yearly maximum value addition was ascertained at Taka 93,334 with a fixed amount of minimum Taka 14,000 package VAT. And in other areas, for small retail traders, yearly maximum value addition was ascertained at Taka 46,667 with a fixed amount of minimum Taka 7,000 package VAT. It was directed that the VAT Divisional Officer, Circle Officer, Assistant Revenue Officer and local business leaders together shall prepare list of such small retail traders. So, determination was also assumptive. Even today, ascertaining value addition is a challenging task in our VAT management system. These small retail traders were required to preserve purchase documents, cash memo and sale register. Package VAT could be paid yearly once or in monthly instalments. Based on the above value addition and considering about 30 to 40 per cent value addition in a business, the yearly turnover stands at around Taka 5 lac or near. Currently, an entity with Taka 30 lac or below annual turnover enjoys VAT-free status. So, the need for reintroduction of package VAT does not arise.
In the years close to 2019 when package VAT was scrapped, total trade VAT collection stood at about Taka 4,000 core a year. Of the amount, package VAT contributed to Taka 238, 189 and 117 crore respectively during FYs 2015-16, 2016-17 and 2018-19-a very insignificant amount (The Fiancial Express, 26 April, 2026). Mentionably, the amount of Turnover Tax (TT)-another tax on SME during this period was about Taka 4.85, 2.45 and 20.74 crore respectively-scanty amount. So, the collection from package VAT and TT is very negligible. So, this shall not be a sane proposal to pursue these micro entities-then the bigger ones may go unattended.
A stark reality of our economy is overwhelming amount of turnover is generated by a small number of actors and the overwhelming number of actors generate small amount of turnover. This is true at manufacturing, service, trading all stages. Revenue pattern is also same. The dark reality is the VAT authorities till today could not know the real amount of turnover. This is the greatest challenge in our revenue system requiring utmost attention. An attention on package VAT is rather misguided or misdirected.
Points of Consideration
Detection of the actual amount of turnover of the business entities is the biggest challenge in our VAT system. So, we need to find criteria-based solution on that basis we can differentiate the traders eligible to pay VAT and keep some of them outside VAT. Our current trade VAT regime is a bit anomalous. Generally, we know that an entity with a yearly turnover not exceeding Taka 30 lac enjoys VAT exemption, an entity with a yearly turnover not exceeding Taka 50 lac shall pay 4 per cent Turnover Tax (TT) and an entity with above Taka 50 lac yearly turnover shall pay VAT. But NBR's General Order No-17/Mushak/2019, dated 17 July 2019 lists goods and services those require paying VAT compulsorily whatever be their business turnover. So, at the field level, it is challenging for the common people to ascertain which entity is required to pay VAT and which entity enjoys VAT-free status.
It is challenging for the small traders to maintain proper accounts. Their revenue contribution is scanty. The VAT administration is not properly equipped to fight in all fronts. Highest amount of VAT is paid by a small number of entities though till today, there persists large-scale underreporting among big and medium entities. VAT is imposed on sale. We need to know the proper amount of sale-of course of the toppers first. Roaming around the utmost periphery of package VAT may generate disturbing discourse only.
Recommendations
To meet the objectives of facilitating SMEs with less strain on revenue collection, provisions can be made to specifically determine who shall pay trade VAT and who shall remain VAT-free. Rather than reintroducing package VAT, the small retail traders may be kept outside VAT net along with current Turnover Tax payers. Only commercial importers, supershops, traders located at shopping mall, general store, departmental store, sole dealer, sole agent, sole distributor, entities with limited company and partnership status can be kept under trade VAT regime. A trader located anywhere with less than 150 square feet space who is a retailer and not a limited company or not a partnership firm can be kept outside trade VAT. Advance Tax (AT) paid at import stage by any commercial importer can be made final settlement with ease during first sale. Those who sell at purchase price being sole agent on commission basis shall not pay any VAT since there is no value addition. Rate of trade VAT may be reduced to 3-5 per cent-the current 7.5 per cent trade VAT without input tax credit is too heavy. It is recommended that trade VAT provisions may be framed accordingly. Prior to its introduction, complete invoice automation of these entities at one go is suggested strongly.
The objective of reintroduction of package VAT is to give relief to the small traders-a good move but cauious weighing is needed about whether the measures to be taken shall meet the objectives. It is more expedient to remove VAT from small traders, rather than reintroducing package VAT because reintroduction of package VAT shall neither give the small traders relief, nor shall it contribute to any significant amount of revenue. At the same time, Turnover Tax (TT) may also be scrapped. This can be the proper approach to facilitate the SMEs. The government shall lose pea nuts. VAT administration can be engaged in ensuring compliance of large and medium players generating many times more returns in terms of revenue.
The writer is a former Member of NBR. He is currently Chairman of Bangladesh VAT Professionals Forum and International VAT Training Institute.