Bangladesh wants a tax system that businesses trust, an investment climate that rewards the formal economy, and a treasury that can meet its bills without constant borrowing.
This July, the Finance Act 2026 moved us a long way towards the first two.
The Act, in force since July 1, cut VAT returns from 12 a year to four. It ended the rule that disallowed an expense whenever tax had not been deducted at source, lowered the deposit needed to contest a tax demand, and fixed income tax rates for five years.
Few budgets in recent memory have taken the cost of compliance this seriously. The finance minister and his team deserve full credit for it.
The third goal, however, is where the difficulty lies.
That is exactly why the National Board of Revenue's current look at quarterly VAT payment should be read with care, not alarm.
The reform bundled two separate things. One is how often a business files. The other is how often it pays.
Filing less often saves time and paperwork, and costs the state very little. Paying less often is different. It moves cash out of the treasury and into company accounts, and that has a price.
The numbers are not hard to work out. Under section 64 of the VAT Act, VAT used to be paid within 15 days of the end of each month. It is now paid within 15 days of the end of each quarter.
Assume sales are spread evenly through the month. Under the old system, the average VAT amount reached the treasury about a month after it was collected. Under the new one, VAT collected in the first month of a quarter waits about three months, in the second about two, and in the third about one. That is an average of two months. VAT now stays in private hands twice as long.
Estimates put the resulting float at roughly Tk20,000 crore. The government has to borrow to replace it, at a cost of about Tk2,000 crore a year, which implies an interest rate of around 10%.
Put simply, the state is giving registered businesses an interest-free loan and paying market rates to fund it.
In an ordinary year, the country could carry that cost. This year, it cannot do so comfortably.
The conflict in the Gulf has pushed Bangladesh back onto the spot market for LNG. The latest cargoes were approved at close to $30 per MMBtu, against the $10 to $12 we typically paid before the conflict.
Petrobangla estimates the conflict added Tk10,600 crore to the LNG subsidy in FY2025-26 alone. One study puts the extra fossil fuel import bill at up to $2.8 billion this year. None of these bills wait for the end of a quarter. They fall due cargo by cargo.
All of this lands on a revenue base that remains among the narrowest in the world relative to GDP.
This is a cash-flow problem, not a solvency one. But cash-flow gaps get filled with borrowed money, and the public pays the interest.
Then there is administration. The NBR has matched VAT records month by month for years. A quarterly cycle pushes back the point at which mismatches come to light, and research on tax compliance has long found that the chance of being caught shapes behaviour at least as much as the size of the penalty.
The NBR has been candid that its systems were not fully ready for the change, and it is now weighing a return to the old arrangement. Automatic eVAT enlistment and digital Mushak invoicing, both introduced by the Act, are the right long-term fix. They will need time.
Other countries have already worked through this problem.
India's QRMP scheme, introduced in 2021, lets goods and services taxpayers with turnover of up to Rs 5 crore file quarterly but pay monthly. Under its fixed-sum option, each of the first two monthly payments is 35% of the previous quarter's cash liability, so roughly 70% is paid before the return is filed.
The United Kingdom has run a payments on account regime since 1993. Businesses with annual VAT liabilities above £2.3 million make interim payments in the second and third months of each quarter, and settle the balance when they file.
In my view, the answer already sits within Bangladesh's own tax framework.
Our advance income tax asks taxpayers to pay in installments through the year and settle the balance later. I believe the same approach can be applied to VAT.
Keep the quarterly return exactly as it is. Ask businesses to pay around three-quarters of their estimated monthly liability each month, and settle the rest with the return.
On the same assumptions as before, the average holding period drops from two months to about one and a quarter. The treasury gets back roughly three-quarters of the float. Businesses keep the lighter paperwork and a quarter of the cash benefit. The change could start with larger taxpayers, where most of the float sits, and leave the smallest firms alone.
The finance minister has approached this question with the care it calls for. Rather than settle it by order, he has chosen to hear from business first, which is the surest way to protect confidence in a reform his own budget introduced.
A time-bound adjustment, with a clear point at which the full facility returns once energy import costs ease, would build naturally on that approach.
Businesses have a part to play as well. If they expect the state to keep its word, they should keep theirs, paying on time and keeping their invoicing records in order.
Taken as a whole, the government's handling of this issue is sound. It introduced the relief, recognized the pressure that followed, admitted where its systems fell short, and opened the question to consultation.
Asking that VAT, collected on the state's behalf, reach the treasury sooner does not add to anyone's tax bill. It is a reasonable request in an energy crisis, when the country is paying far more for imported LNG than it did before the conflict.
It simply matches the pace of public revenue to the pace of public spending. At a time like this, that is what sound fiscal management looks like.
Ashfaq Zaman is the chief strategist of the Dhaka Forum Initiative and a strategic international affairs expert.
