NBR mulls return to monthly VAT payments amid collection slump

Highlights:

• Government considers restoring monthly VAT returns and payments
• VAT collection fell nearly 20% during July-August
• NBR says September data will clarify quarterly system's impact
• Businesses oppose monthly payments, citing increased compliance burdens
• Over eight lakh businesses are currently VAT-registered
• Businesses claim quarterly VAT provisions were poorly implemented

The government is considering reversing its decision to allow businesses to submit VAT returns and pay VAT every three months instead of monthly after VAT collection fell sharply in the first two months of the current fiscal year.

The National Board of Revenue's VAT policy wing has sent a letter to the finance ministry on the matter, according to NBR sources. However, the government wants to discuss the issue with businesses before making a final decision.

NBR Member Syed Mushfequr Rahman told The Business Standard, "I have heard that a letter has been sent to the finance ministry from the NBR's VAT Policy Wing on this matter."

VAT collection falls in first two months

VAT collection fell by nearly 20% year-on-year in July and August, according to provisional NBR figures, prompting concerns over the impact of the quarterly payment system on revenue collection.

The NBR collected Tk9,301 crore in VAT in July, compared with Tk11,547 crore in the same month a year earlier.

In August, VAT collection stood at Tk8,362 crore, down from Tk11,081 crore in August last year.

Combined VAT collection for the first two months of the fiscal 2026-27 was therefore Tk17,663 crore, compared with Tk22,628 crore in the same period a year earlier.

VAT return submissions also declined to 3.06 lakh in July from 3.28 lakh in June.

"If the government now returns to the monthly system, it will conflict with its efforts to reduce the hassle faced by businesses."

Debabrata Roy Chowdhury, Former director, Nestle Bangladesh Limited

NBR officials, however, cautioned against concluding the July-August figures, saying businesses have been given until the end of September to submit their returns under the quarterly system.

An NBR official, speaking on condition of anonymity, said the September figures would provide a clearer picture of whether VAT collection and return submissions had actually declined.

"After three months, it will be possible to understand whether the decision to allow returns and VAT payments after three months instead of every month was self-defeating for the government," he said.

He added that public money could not remain with businesses for a long period because the government itself has to pay interest on its borrowing.

Businesses oppose return to monthly payments

Businesses have warned that restoring monthly VAT payments would run counter to the government's efforts to reduce compliance burdens and improve the ease of doing business.

Debabrata Roy Chowdhury, former director of Nestle Bangladesh Limited, said taxpayers and businesses generally submit income tax returns once a year, whereas VAT returns have traditionally had to be submitted every month.

"This is a hassle for small and medium-sized businesses," he said.

Debabrata said the quarterly VAT return and payment arrangement had been a welcome measure for such businesses.

"But if the government now returns to the monthly system, it will conflict with its efforts to reduce the hassle faced by businesses," he said.

Some NBR officials have suggested that the government could adopt a compromise by allowing VAT returns to be submitted quarterly while requiring VAT payments to be made monthly.

Businesses, however, say such an arrangement would not significantly reduce their compliance burden.

"If VAT has to be paid every month, businesses still have to calculate the amount. That would create almost the same hassle as submitting returns every month," said Debabrata.

More than 8 lakh VAT-registered businesses

Bangladesh currently has more than 8 lakh businesses registered for VAT and holding Business Identification Numbers, according to the NBR.

The revenue authority says around 5 lakh returns are submitted every month, although a large proportion are zero returns that generate no VAT revenue.

Amir Hossain Nurani, a steel trader in Old Dhaka, said small businesses often have to employ a separate person to handle monthly VAT returns.

"Having to submit returns every month means hiring a separate person, which is difficult for small businesses," he said.

Nurani said the quarterly system had reduced the burden on businesses by giving them more time to submit returns and removing the pressure of making monthly payments.

"If the government provides a facility and then withdraws it, that does not uphold its commitment to making business easier," he added.

Businesses question implementation of quarterly system

Some businesses also claim that the quarterly VAT payment provision was not fully implemented in practice.

Speaking on condition of anonymity, an Old Dhaka businessman said VAT officials continued contacting businesses before the monthly payment deadline and asking them to pay their VAT dues.

"VAT officials would start calling before the monthly deadline to ask us to make the payment, and we had to pay as usual," he said.

He claimed that businesses therefore did not receive the benefit of the quarterly payment facility announced in the budget.

A businessman outside Dhaka also made a similar claim.

However, these claims could not be independently verified from the information available.