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Dhaka Tribune

WB: Bangladesh lost 200,000C in potential VAT 6 years ago

The global lender also said the amount of VAT that the country missed out on was more than twice the revenue that it logged during the year

Update : 03 Apr 2024, 08:39 PM

Bangladesh missed out on about Tk200,000 crore in value added tax (VAT) in FY19 due to lack of compliance by firms, prevalence of exemptions, and truncated rates below the flat 15% rates, said the World Bank (WB) on Tuesday.

The global lender also said the amount of VAT that the country missed out on was more than twice the revenue that it logged during the year, which amounted to Tk85,000 crore that fiscal.

Most of it was caused by policy choices, while the WB measured VAT losses based on an analysis of the VAT gap -- an estimate of the overall difference between theoretical VAT revenue and the amount actually collected.

The VAT gap analysis is based on the methodology introduced for the International Monetary Fund's Revenue-Administration Gap Analysis program.

Bangladesh currently collects approximately half of its potential revenue, given its economic structure, level of development, and trade openness, said the report.

If there were no policy and compliance gaps, there is potential to collect over three times more VAT revenue, said the report.

Bangladesh's estimated compliance gap is 42% while it ranges from 5%-10% in South Africa and 28%-31% in Costa Rica, said the report.

In terms of policy gap, Bangladesh is less of an outlier. Policy gaps range from 25-32% in South Africa and 64% in Sri Lanka, with Bangladesh's policy gap estimated at 49% of reference revenue.

The WB report said Bangladesh only generates two-thirds of the predicted amount in personal income tax and less than 60% of the predicted amount in corporate taxes.

For the latter, Bangladesh is among the worst-performing middle-income countries, said the World Bank.

About major bottlenecks, the report said the government is deprived of large amounts of tax revenue due to money laundering, tax evasion, and illicit capital flows.

Most of these challenges have persisted for at least the last decade despite being recognized by the government. They are yet to be resolved, said the report.

Besides, corporate tax compliance is poor. According to NBR data, more than 56% of firms do not have a TIN and over 55% of TIN-holding companies do not pay corporate taxes.

Only a handful of telecom operators, tobacco companies, and banks account for the bulk of the collection.

In the FY22 budget, the corporate tax rates for non-listed companies and listed companies have been reduced by 2.5 percentage points to 30% and 22.5%, respectively.

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