The case for recalibrating the VAT clock

Last July, Bangladesh's businesses were given a straightforward, unforced concession.

The Finance Act 2026 cut VAT filings from twelve a year to four, sharply reduced the deposit needed to contest a tax demand, scrapped a punitive disallowance regime, and fixed tax rates for five years. No VAT was waived; the money a business collects from a customer still belongs to the treasury, but the paperwork behind it, the monthly returns that had long been a drag on small firms, was eased. It is worth restating this plainly, because it is easily forgotten once a benefit becomes routine.

That is the record against which the present review should be read. Governments do not usually reopen their own reforms to bury them; they do so to protect them. The question now is not whether quarterly filing was the right idea, but whether this year, of all years, the treasury can afford its timing.

It helps to be precise about what is actually being discussed, because it is narrower than it sounds. Nobody is proposing a new tax, and no business will pay a single taka more. VAT is the public's money, held briefly in private hands between the till and the treasury. The only question is how long that journey should take.

That timing matters more this year than usual, for reasons no ministry could have planned for. Since fighting in the Middle East disrupted shipping through the Strait of Hormuz in February, Bangladesh has been buying LNG cargo by cargo on the spot market, at times paying close to $28 per unit. The costliest gas the country has bought in years. Analysts estimate the extra import bill at up to $2.8 billion this year, with the subsidy bill running into tens of thousands of crore taka. A war fought abroad is still paid for at home.

It is being paid for, moreover, from a treasury that was already thin. Bangladesh has one of the lowest tax-to-GDP ratios in the world, and last year's revenue fell short by close to Tk 87,500 crore. A gap that predates this government and now leaves it little room to absorb a shock it did not cause.

The arithmetic is simple enough to state plainly. Under the old rules, VAT collected in July reached the treasury within weeks. Under the new one, it may lawfully sit in a company's account for up to three months. Spread across the country's registered businesses, roughly Tk 20,000 crore in VAT receipts effectively moves from public to private hands for a season. Collections in July and August already came in lower than the year before due to being delayed. Yet the state's own bills, salaries, pensions, subsidies, gas cargoes, fall due every month regardless. To bridge that gap, the government borrows, at a carrying cost of roughly Tk 2,000 crore a year. In plain terms: the public pays interest so that money it has already handed over can wait a little longer. In an ordinary year, that is a fair price for easing business life. In a year of $28 gas, it is harder to justify.

There is a second, quieter problem worth acknowledging, because the case for recalibration is stronger for admitting it. The National Board of Revenue's own systems were not fully ready for the shift. VAT tracking has long run on a monthly rhythm, matched invoice by invoice; moving straight to a quarterly cycle makes that reconciliation harder to do properly, and creates real scope for VAT simply going untracked, not through fraud necessarily, but through a system not yet built to follow it. The NBR has said as much itself, which is to its credit, an institution that names its own gaps is one that intends to close them. But digital invoicing and automatic registration take time to build, while the treasury's bills fall due in weeks.

None of this points to scrapping the facility. The finance minister has committed to consulting business before any decision, which is the right instinct, and the one that separates a recalibration from a retreat. Bangladesh's own tax law already offers a workable model. Advance income tax asks taxpayers to pay estimated instalments through the year and settle the balance later. VAT could borrow that logic: keep the quarterly return, so the paperwork relief survives largely intact, but ask that most of what is owed, in the region of three-quarters, be paid monthly, with the balance settled at the quarter's end. Businesses keep most of the relief and some working capital; the treasury regains the monthly rhythm a wartime economy cannot do without. Both sides give a little. Neither loses everything.

The commitment should run the other way too. Everything about this year's reforms suggests the government's instinct is to ease the path for business, and that instinct should reassert itself the moment the fiscal weather improves—ideally with a stated, public trigger for restoring the full facility. The finance minister has said the government will discuss the complications before deciding, and that discussion should include business, which is what separates a recalibration from a retreat. 

That is the fairer way to judge this moment. A government indifferent to business would simply have reversed the facility by decree and said nothing further. This one legislated it, watched a war strip away the ground beneath it, disclosed the problem openly, and asked those affected what they thought. What is being asked for now is not sacrifice, but sequence: money that was always public, arriving a little sooner, in a season when the state is paying twice over for the energy that keeps the country running.

Ashfaq Zaman is the founder of Dhaka Forum and a strategic international affairs expert.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.