Budget to target business bottlenecks with VAT, customs and tax reforms

Highlights:

• Budget focuses on trade facilitation, not new taxes
• VAT returns may shift from monthly to quarterly
• Automated online VAT registration could eliminate official approvals
• Customs reforms aim to speed port clearance significantly
• AEO licence rules may be relaxed for more businesses
• Businesses and economists broadly welcome proposed reforms

Business relief will take center stage in the upcoming national budget, which is expected to introduce a series of measures aimed at removing barriers to doing business, with a strong focus on trade facilitation rather than imposing new taxes.

Proposed reforms on the table include shifting to quarterly VAT return filings instead of monthly, implementing a fully automated VAT registration system, and easier access to fast-track port clearance schemes, according to National Board of Revenue sources involved in the preparations.

Sources said businesses may be allowed to submit VAT returns every three months instead of monthly, while continuing to pay VAT on a monthly basis. This would reduce filing requirements from 12 returns a year to four for around 500,000 businesses that file VAT returns every month.

Infograph: TBS

The budget may also introduce provisions allowing companies using NBR-approved Enterprise Resource Planning (ERP) software to avoid submitting hard copies of VAT returns and audit-related documents.

In addition, online VAT registration could be made fully automated, removing the requirement for approval from VAT officials.

Another major proposal aims to drastically cut customs clearance times at ports. Currently, imported products and chemical samples can only be tested by the Bangladesh Standards and Testing Institution (BSTI) and the Bangladesh Atomic Energy Commission – a bottleneck that routinely drags the process out for two weeks.

Under the proposed changes, testing could also be conducted by any institution accredited by the International Organization for Standardization (ISO) and the Bangladesh Accreditation Board, which officials believe would significantly reduce delays.

The NBR is also considering relaxing the conditions for obtaining Authorised Economic Operator (AEO) licences, allowing more businesses to qualify as trusted traders and enjoy faster customs clearance. Physical examination requirements for AEO licence holders may also be reduced further.

Existing requirements related to declarations and approvals for input-output coefficients – which determine the amount of raw materials used to produce finished goods – may also be eased.

An NBR senior official, speaking on condition of anonymity, said, "There are plans in this budget to simplify areas where trade currently faces obstacles…This will be a budget of 'no imposition, fewer exemptions – only trade facilitation'."

NBR Chairman Abdur Rahman Khan had also assured business leaders in meetings in March and April that the upcoming budget would prioritise removing barriers to business activity.

The NBR is also expected to move away from the widely criticised minimum tax regime. Budget proposals may include provisions allowing refunds of advance taxes or tax deducted at source once taxpayers become eligible for repayment after a specified period.

The finance minister's budget speech may also include a commitment to a more predictable tax regime, with newly announced tax rates for both individual and corporate taxpayers potentially fixed for the next five years.

Business leaders and economists have welcomed the proposed reforms.

Debabrata Roy Chowdhury, director of Nestlé Bangladesh PLC, told The Business Standard, "What we are hearing regarding VAT and customs reforms will genuinely support trade facilitation if implemented.

"It is becoming clear that the government is trying to understand the challenges faced by businesses."

He noted that while monthly VAT return submission may not be a major burden for large companies, it creates difficulties for smaller firms.

"Businesses also have to visit VAT offices with documents, which often involves additional costs. Effective implementation of a paperless system would benefit both businesses and the NBR," he added.

Mohammad Hatem, president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), described the proposals as a positive step. "If such measures are announced in the budget, we will welcome them," he said.

"The government has spoken about trade facilitation since taking office. If these proposals are included, it will demonstrate that commitment in practice."

He argued that the current tax collection system puts excessive pressure on businesses. "Businesses will not survive under the present system of tax collection. Investment will not come either," he said.

Former NBR chairman Muhammad Abdul Mazid also backed the proposed reforms. He previously led a committee formed during the interim government's tenure to recommend reforms for the NBR.

"Trade facilitation is essential. There is no alternative," he told TBS. "If ease of doing business cannot be ensured, the economy will not function properly. And if the economy does not function, revenue collection will also suffer."

He said both his committee and subsequent reform bodies had consistently emphasised improving the business environment. 

"If these issues receive importance in the budget, it will be positive for both the economy and revenue collection," he said. "Revenue cannot be increased through fear."

Business leaders say the current requirement to submit VAT returns every month forces companies of all sizes to prepare and file large volumes of documentation.

Many believe reducing submissions from 12 to four per year would be a significant improvement, though some, including Mohammad Hatem, argue returns should ultimately be filed annually, similar to income tax.

The NBR-approved ERP system is a business management software solution that centralises data, reduces duplication and improves operational efficiency. Officials say companies using it would no longer need to submit hard-copy documents with VAT returns, supporting the government's paperless administration drive.

At present, even after online submission, businesses are often required to submit physical documents to VAT offices. Officials acknowledge this can create opportunities for harassment and procedural delays due to in-person visits.

Businesses have also long raised concerns over approval processes for input-output coefficients. The budget may simplify both the approval mechanism and conditions for exemption from such declarations.

Faster testing, customs clearance

Under current rules, disputes over classification of imported goods or chemicals often require laboratory testing, which is limited to BSTI and the Bangladesh Atomic Energy Commission.

This frequently results in shipments being sent to Dhaka for testing, causing delays while consignments remain stuck at ports and importers incur demurrage charges.

The proposed reforms would allow testing by any ISO-certified and Bangladesh Accreditation Board (BAB)-accredited institution. Officials expect this to reduce testing time, speed up customs clearance and lower business costs.

The Authorised Economic Operator (AEO) programme, introduced in 2019, allows trusted importers and exporters to move goods directly from ports to warehouses without immediate inspection.

However, despite its intended benefits, only 20 companies have obtained AEO licences in more than six years.

Businesses say eligibility requirements remain too strict, limiting participation. The budget may therefore relax these conditions and reduce the frequency of physical inspections for certified firms.

Businesses call for faster release of consignments

While expanded testing options are welcomed, business leaders argue a more effective solution would be to allow consignments to be released from ports while testing is carried out.

Debabrata Roy Chowdhury said, "When consignments remain at the port while samples are tested, it can take around 15 days to receive the report. Demurrage charges begin after four days."

"Our company alone pays around Tk10 crore in demurrage annually because of such delays."

"If the NBR allows consignments to be cleared while samples are being tested, importers would not have to bear additional demurrage costs. That would be a more effective system."

Mohammad Hatem echoed the view, saying faster release of consignments would significantly reduce costs and improve trade efficiency.